NEW YORK LIFE INSURANCE COMPANY FINANCIAL STATEMENTS ...€¦ · Gain from operations before...

NEW YORK LIFE INSURANCE COMPANY

FINANCIAL STATEMENTS(STATUTORY BASIS)

DECEMBER 31, 2018 and 2017

Table of Contents

Page NumberIndependent Auditor's Report 1Statutory Statements of Financial Position 3Statutory Statements of Operations 4Statutory Statements of Changes in Capital and Surplus 5Statutory Statements of Cash Flows 6Notes to Statutory Financial Statements

Note 1 - Nature of Operations 8Note 2 - Basis of Presentation 8Note 3 - Significant Accounting Policies 13Note 4 - Business Risks and Uncertainties 21Note 5 - Recent Accounting Pronouncements 22Note 6 - Investments 23Note 7 - Derivative Instruments and Risk Management 33Note 8 - Separate Accounts 38Note 9 - Fair Value Measurements 41Note 10 - Investment Income and Capital Gains and Losses 52Note 11 - Related Party Transactions 56Note 12 - Insurance Liabilities 58Note 13 - Reinsurance 63Note 14 - Benefit Plans 64Note 15 - Commitments and Contingencies 76Note 16 - Income Taxes 81Note 17 - Surplus 85Note 18 - Significant Subsidiary 86Note 19 - Written Premiums 87Note 20 - Loan-Backed and Structured Security Impairments 88Note 21 - Subsequent Events 91

Glossary of Terms 92

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us

Report of Independent Auditors

To the Board of Directors of New York Life Insurance Company: We have audited the accompanying statutory financial statements of New York Life Insurance Company (the “Company”), which comprise the statutory statements of financial position as of December 31, 2018 and 2017, and the related statutory statements of operations, of changes in surplus, and of cash flows for the years then ended. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles As described in Note 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the New York State Department of Financial Services, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America are material.

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Adverse Opinion on U.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the “Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles” paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2018 and 2017, or the results of its operations or its cash flows for the years then ended. Opinion on Statutory Basis of Accounting In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and surplus of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services described in Note 2. Emphasis of Matter As disclosed in Note 11 to the financial statements, the Company has entered into significant related party transactions with its affiliates. Our opinion is not modified with respect to this matter.

March 7, 2019

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NEW YORK LIFE INSURANCE COMPANYSTATUTORY STATEMENTS OF FINANCIAL POSITION

December 31,2018 2017

(in millions)AssetsBonds $ 106,077 $ 98,176Common and preferred stocks 10,318 10,807Mortgage loans 17,554 15,676Policy loans 11,208 10,877Limited partnerships and other invested assets 9,581 9,457Cash, cash equivalents and short-term investments 2,835 2,420Derivatives 648 587Real estate 1,486 1,524Other investments 90 111

Total cash and invested assets 159,797 149,635Deferred and uncollected premiums 1,938 1,950Investment income due and accrued 1,494 1,285Funds held by reinsurer - affiliated — 4,015Other assets 6,354 6,527Separate accounts assets 10,453 13,354Total assets $ 180,036 $ 176,766Liabilities and surplusLiabilities:Policy reserves $ 109,968 $ 107,552Deposit funds 21,909 17,922Dividends payable to policyholders 1,911 1,897Policy claims 747 786Borrowed money 501 496Amounts payable under security lending agreements 653 679Derivatives 342 323Funds held under coinsurance 4,048 4,228Other liabilities 5,369 5,862Interest maintenance reserve 535 658Asset valuation reserve 2,594 2,652Separate accounts liabilities 10,453 13,354Total liabilities 159,030 156,409Surplus:Surplus notes 1,994 1,993Unassigned surplus 19,012 18,364Total surplus 21,006 20,357Total liabilities and surplus $ 180,036 $ 176,766

See accompanying notes to financial statements.3

NEW YORK LIFE INSURANCE COMPANYSTATUTORY STATEMENTS OF OPERATIONS

Years Ended December 31,2018 2017

(in millions)IncomePremiums $ 17,085 $ 15,071Net investment income 7,338 6,708Other income 184 436Adjustment in funds withheld (3,886) 189Total income 20,721 22,404Benefits and expensesBenefit payments:

Death benefits 3,940 3,944Annuity benefits 1,280 1,215Health and disability insurance benefits 257 241Surrender benefits 2,386 2,436Payments on matured contracts 5,517 4,130Other benefit payments 482 369

Total benefit payments 13,862 12,335Additions to reserves 2,291 4,756Net transfers from separate accounts (1,706) (981)Adjustment in funds withheld 149 158Operating expenses 3,308 3,229Total benefits and expenses 17,904 19,497Gain from operations before dividends and income taxes 2,817 2,907Dividends to policyholders 1,974 1,958Gain from operations before income taxes 843 949Federal and foreign income taxes (442) (622)Net gain from operations 1,285 1,571Net realized capital losses, after tax and transfers to interest maintenancereserve (75) (91)Net income $ 1,210 $ 1,480


NEW YORK LIFE INSURANCE COMPANYSTATUTORY STATEMENTS OF CHANGES IN SURPLUS


(in millions)Surplus, beginning of year $ 20,357 $ 20,108Net income 1,210 1,480Change in liability for pension and postretirement plans 248 543Change in asset valuation reserve 58 (476)Change in nonadmitted assets 17 (289)Change in net deferred income tax (93) (1,523)Change in reserve valuation basis (236) (314)Change in net unrealized capital gains on investments (550) 843Other adjustments, net (5) (15)Surplus, end of year $ 21,006 $ 20,357


NEW YORK LIFE INSURANCE COMPANYSTATUTORY STATEMENTS OF CASH FLOWS


(in millions)Cash flows from operating activities: Premiums received $ 17,087 $ 14,997 Net investment income received 6,301 6,233 Other 249 449 Total received 23,637 21,679 Benefits and other payments 13,673 12,219 Net transfers from separate accounts (1,702) (991) Operating expenses 2,748 2,685 Dividends to policyholders 1,964 1,938 Federal income taxes received (863) (197) Total paid 15,820 15,654Net cash from operating activities 7,817 6,025Cash flows from investing activities: Proceeds from investments sold 6,102 4,192 Proceeds from investments matured or repaid 12,871 12,956 Cost of investments acquired (29,168) (23,480) Net change in policy loans and premium notes (332) (281)Net cash used in investing activities (10,527) (6,613)Cash flows from financing and miscellaneous activities: Other changes in borrowed money 4 (7) Net inflows from deposit contracts 3,729 1,106 Net change in amounts payable under security lending agreements (26) 25 Other miscellaneous uses (582) (1,105)Net cash from financing and miscellaneous activities 3,125 19Net increase (decrease) in cash, cash equivalents and short-term

investments 415 (569)Cash, cash equivalents and short-term investments, beginning of year 2,420 2,989Cash, cash equivalents and short-term investments, end of year $ 2,835 $ 2,420


NEW YORK LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF CASH FLOWS (supplemental)


(in millions)Supplemental disclosures of cash flow information:Non-cash activities during the year not included in the StatutoryStatements of Cash Flows:

Transfer of assets between investment types $ 1,124 $ 1,239Depreciation/amortization on fixed assets $ 203 $ 154Capitalized interest on bonds and other invested assets $ 115 $ 115Transfer of equity to charitable organizations $ 100 $ 15Capital contribution to affiliated other invested asset $ 38 $ —Merger/spinoff/exchange/conversion/transfer of equity investment toequity investment $ 27 $ 40Exchange/conversion of bond investment to equity investment $ 17 $ 49Low income housing tax credit future commitments $ 9 $ 21Other $ 6 $ 23Bond to be announced commitments-purchased/sold $ — $ 212Dividend distribution from affiliated other invested asset $ — $ 10


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NEW YORK LIFE INSURANCE COMPANYNOTES TO STATUTORY FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

NOTE 1 – NATURE OF OPERATIONS

New York Life Insurance Company (the "Company”), a mutual life insurance company domiciled in New York State,and its subsidiaries offer a wide range of insurance and investment products and services including life insurance,annuities, long-term care, insurance pension products, disability insurance, mutual funds, securities brokerage, financialplanning, trust services, capital financing, and investment advisory services. The Company and its subsidiaries itsinsurance and annuity products throughout the United States and its territories, Mexico and Canada, primarily throughthe Company’s career agency force, but also through third party banks, brokers and independent financial advisors.The Company and its subsidiaries provide investment management and advisory services in the United States, Europe,Asia and Australia.

NOTE 2 – BASIS OF PRESENTATION

The accompanying financial statements have been prepared using accounting practices prescribed by the New YorkState Department of Financial Services (“NYSDFS” or “statutory accounting practices”), which is a comprehensivebasis of accounting other than accounting principles generally accepted in the U.S. (“U.S. GAAP”).

NYSDFS recognizes only statutory accounting practices prescribed or permitted by the State of New York fordetermining and reporting the financial position and results of operations of an insurance company and for determiningits solvency under New York Insurance Law. The National Association of Insurance Commissioners’ (“NAIC”)Accounting Practices and Procedures Manual (“NAIC SAP”) has been adopted as a component of prescribed practicesby the State of New York. Prescribed statutory accounting practices include state laws and regulations. Permittedstatutory accounting practices encompass accounting practices that are not prescribed; such practices differ from stateto state, may differ from company to company within a state, and may change in the future. The Company has nopermitted practices.

A reconciliation of the Company’s net income and capital and surplus at December 31, 2018 and 2017 between practicesprescribed or permitted by the State of New York and NAIC SAP is shown below (in millions):

SSAP #F/S

Page 2018 2017Net income, State of New York basis XXX XXX $ 1,210 $ 1,480State prescribed practices:

1. NYSDFS Circular Letter No. 11 (2010) impact ondeferred premiums(1) 61 3,4,6(3) 1 3

2. NYSDFS Seventh Amendment to Regulation No. 172admitted unearned reinsurance premium(2) 61 3,4,6(3) (2) (2)

Net income, NAIC SAP XXX XXX $ 1,209 $1,481

A reconciliation of the Company’s capital and surplus at December 31, 2018 and 2017 between practices prescribedby the State of New York and NAIC SAP is shown below (in millions):

SSAP #F/S

Page 2018 2017Capital and surplus, State of New York basis XXX XXX $ 21,006 $ 20,357State prescribed practices:

1. NYSDFS Circular Letter No. 11 (2010) impact ondeferred premiums(1) 61 3,4,6(3) 124 122

2. NYSDFS Seventh Amendment to Regulation No. 172admitted unearned reinsurance premium(2) 61 3,4,6(3) (50) (48)

Capital and surplus, NAIC SAP XXX XXX $ 21,080 $ 20,431

(1) NYSDFS Circular Letter No. 11 (2010) clarified the accounting for deferred premium assets when reinsurance is involved.(2) NYSDFS Regulation 172 was amended to allow for the admission of an unearned reinsurance premium asset.(3) Financial statement line items include: Deferred and uncollected premiums (Assets), Premiums (Operations), and Premiumsreceived (Cash Flows)

Statutory vs. U.S. GAAP Basis of Accounting

Financial statements prepared under NAIC SAP as determined under New York State Insurance Law vary from thoseprepared under U.S. GAAP. The primary differences that apply to the financial statements of the Company are asfollows:

• investments in subsidiaries and other controlled entities, including partnerships, limited liability companies andjoint ventures, are not consolidated with the financial statements of the Company, whereas under U.S. GAAP,consolidated financial statements are prepared;

• contracts that have any mortality or morbidity risk, regardless of significance, and contracts with life contingentannuity purchase rate guarantees are classified as insurance contracts, whereas under U.S. GAAP, only contractsthat have significant mortality or morbidity risk are classified as insurance contracts otherwise they are accountedfor in a manner consistent with the accounting for interest bearing or other financial instruments;

• the costs related to acquiring insurance contracts (principally commissions), policy issue expenses and salesinducements are charged to income in the period incurred, whereas under U.S. GAAP, these costs are deferredwhen related to successful sales and amortized over the periods benefited;

• life insurance and annuity reserves are based on different statutory methods and assumptions than they are underU.S. GAAP;

• dividends on participating policies are recognized for the full year when approved by the board of directors of theCompany, whereas under U.S. GAAP, they are accrued when earned by policyholders;

• certain policies which do not pass through all investment gains to policyholders are maintained in separate accounts,whereas U.S. GAAP reports these policies in the general account assets and liabilities of the Company;

• reinsurance agreements are accounted for as reinsurance on an NAIC SAP and U.S. GAAP basis if certain risktransfer provisions have been met. NAIC SAP requires the reinsurer to assume insurance risk, regardless of thesignificance of the loss potential, whereas U.S. GAAP requires that there is a reasonable possibility that the reinsurermay realize significant loss from assuming insurance risk; under U.S. GAAP, certain reinsurance assumed by theCompany is accounted for at fair value based on the election of the fair value option, whereas this treatment is notallowed under NAIC SAP; assets and liabilities from reinsurance transactions are reported net of reinsurance,whereas under U.S. GAAP, assets and liabilities from reinsurance transactions are reported gross of reinsurance;

NEW YORK LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS

NOTE 2 - BASIS OF PRESENTATION (continued)

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• U.S. GAAP requires that for certain reinsurance agreements, whereby assets are retained by the ceding insurer(such as funds withheld or modified coinsurance) and a return is paid based on the performance of underlyinginvestments, that the liabilities for these reinsurance arrangements must be adjusted to reflect the fair value of theinvested assets; NAIC SAP does not contain a similar requirement;

• investments in subsidiaries, controlled and other affiliated entities as defined in Statements of Statutory AccountingPrinciples ("SSAP") No. 97, "Investments in Subsidiary, Controlled and Affiliated Entities" ("SCAs"), includingpartnerships, limited liability companies and joint ventures, are accounted for under the equity method. Under theequity method, domestic insurance subsidiaries are recorded at their underlying audited statutory surplus. Nonpublicnon-insurance subsidiaries and other controlled entities are recorded at their underlying audited GAAP equity.Foreign insurance subsidiaries are recorded at their underlying audited GAAP equity with certain adjustments. Inthe absence of an admissible audit, the entire investment is nonadmitted. Changes in the value of such investmentsare recorded as unrealized gains or losses. The earnings of such investments are recorded in net investment incomeonly when dividends are declared. Under U.S. GAAP, these investments are consolidated;

• investments in noncontrolled partnerships and limited liability companies are accounted for under the equitymethod for both NAIC SAP and U.S. GAAP. Under the statutory equity method, undistributed income and capitalgains and losses for these investments are reported in surplus as unrealized gains or losses, whereas under U.S.GAAP, in many cases, for investment companies, unrealized gains and losses are included in net investment income.

• investments in bonds are generally carried at amortized cost or values as prescribed by the NYSDFS, whereasunder U.S. GAAP, investments in bonds that are classified as available for sale or trading are carried at fair value,with changes in fair value of bonds classified as available for sale reflected in equity, and changes in fair value ofbonds classified as trading reflected in earnings;

• an asset valuation reserve ("AVR") based on a formula prescribed by the NAIC is established as a liability to offsetpotential non-interest related investment losses. Changes in the AVR are recorded directly to surplus, whereasunder U.S. GAAP, no AVR is recognized;

• realized gains and losses resulting from changes in interest rates are deferred in the interest maintenance reserve(“IMR”) and amortized into investment income over the remaining life of the investment sold, whereas under U.S.GAAP, the gains and losses are recognized in income at the time of sale;

• corporate securities deemed to be other-than-temporarily impaired are written down to fair value, whereas underU.S. GAAP, if certain conditions are met, credit impairments on corporate securities are recorded based on the netpresent value of future cash flows expected to be collected, discounted at the current book yield. Also, if certainconditions are met, the non-credit portion of the impairment on a loan-backed or structured security is not accountedfor whereas under U.S. GAAP, if certain conditions are met, the non-credit portion of the impairment on a debtsecurity is recorded through other comprehensive income. A non-credit loss exists when the fair value of a securityis less than the present value of projected future cash flows expected to be collected;

• deferred income taxes exclude state income taxes and are admitted to the extent they can be realized within threeyears subject to a 15% limitation of capital and surplus with changes in the net deferred tax reflected as a componentof surplus, whereas under U.S. GAAP, deferred income taxes include federal and state income taxes and changesin deferred taxes are reflected in either earnings or other comprehensive income;

• a tax loss contingency is required to be established if it is more likely than not that a tax position will not besustained upon examination by taxing authorities. If a loss contingency is greater than 50 percent of the tax benefitassociated with a tax position, the loss contingency is increased to 100 percent, whereas under U.S. GAAP theamount of the benefit for any uncertain tax position is the largest amount that is greater than 50 percent likely ofbeing realized upon settlement;



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• certain assets, such as intangible assets, overfunded pension plan assets, furniture and equipment, and unsecuredreceivables are considered nonadmitted and excluded from assets, whereas they are included in assets under U.S.GAAP subject to a valuation allowance, as appropriate;

• goodwill held by an insurance company is admitted subject to a 10% limitation on surplus and amortized over theuseful life of the goodwill, not to exceed 10 years, and goodwill held by non-insurance subsidiaries is assessed inaccordance with U.S. GAAP, subject to certain limitations for holding companies and foreign insurance subsidiaries,whereas under U.S. GAAP, goodwill is considered to have an indefinite useful life and is tested for impairment.Losses are recorded, only when goodwill is deemed impaired;

• fair value is required to be used in the determination of the expected return on the plan assets component of thenet periodic benefit cost of pension and other postretirement obligations, whereas under U.S. GAAP, the market-related value of plan assets is used. The market-related value of plan assets can be either fair value or a calculatedvalue that recognizes asset gains or losses over a period not to exceed five years;

• surplus notes are included as a component of surplus, whereas under U.S. GAAP, they are presented as a liability;

• contracts that contain an embedded derivative are not bifurcated between components and are accounted forconsistent with the host contract, whereas under U.S. GAAP, either the contract is recorded at fair value withchanges in the fair value included in earnings or the embedded derivative needs to be bifurcated from the hostcontract and accounted for separately;

• certain derivative instruments are carried at amortized cost, whereas under U.S. GAAP, all derivative instrumentsare carried at fair value; and

• changes in the fair value of derivative instruments not carried at amortized cost are recorded as unrealized capitalgains or losses and reported as changes in surplus, whereas under U.S. GAAP, these changes are generally reportedthrough earnings unless they qualify and are designated for cash flow or net investment hedge accounting.

The effects on the financial statements of the above variances between NAIC SAP as determined under New York StateInsurance Law and U.S. GAAP are material to the Company.



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The following table reconciles the Company’s statutory capital and surplus determined in accordance with statutoryaccounting practices with consolidated New York Life equity, excluding non-controlling interests, determined on aU.S. GAAP basis at December 31, 2018 and 2017 (in millions):

2018 2017

Capital and surplus $ 21,006 $ 20,357AVR 2,594 2,651Capital and surplus and AVR 23,600 23,008Adjustments to statutory basis for: DAC asset 8,314 6,985 Removal of AVR of domestic insurance companies 1,214 1,190 Mark-to-market on investments, pre-tax and deferred acquisition cost ("DAC") 1,174 8,759 Inclusion of statutory accounting nonadmitted assets 1,048 936 Policyholders' dividend liability 671 651

Liability for pension and other postretirement benefits 659 — Removal of IMR of domestic insurance companies 640 811 Sales inducement asset 579 629 Inclusion of goodwill in excess of statutory limitations 439 437 Net assets of separate accounts 25 252 Differences in reserve valuation bases for future policy benefits and policyholders’ account balances (1,297) (3,263) Net adjustment for deferred taxes (1,890) (2,522) Reclassification of surplus notes to liabilities (1,991) (1,991) Other (66) (86)Total adjustments 9,519 12,788Total consolidated New York Life U.S. GAAP equity, excluding non-controllinginterests $ 33,119 $ 35,796



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The following table reconciles the Company’s statutory net income determined in accordance with statutory accountingpractices with consolidated New York Life net income determined on a U.S. GAAP basis for the years endedDecember 31, 2018 and 2017 (in millions):

2018 2017Net gain from operations $ 1,285 $ 1,571Net realized capital losses (75) (91)Statutory net income 1,210 1,480Adjustments to statutory net income for: Differences in reserve valuation bases for future policy benefits and policyholders' account balances 651 (126) Fair value adjustment of certain liabilities 303 (141) Net capitalization of DAC 240 233 Net income from subsidiaries (less dividends to New York Life) 142 1,427 Dividends to policyholders 15 14 Inclusion of GAAP earnings of limited partnerships, net of distributions 6 (272) Removal of IMR capitalization, net of amortization (126) (64) Inclusion of deferred income taxes (222) (484) Inclusion of GAAP net investment gains (losses) (709) 624 Other (64) 69Total adjustments 236 1,280Total consolidated New York Life U.S. GAAP net income $ 1,446 $ 2,760



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NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities at the date of the financial statements. Management is also required to disclose contingentassets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses duringthe period. Actual results may differ from those estimates.

Bonds

Bonds other than loan-backed and structured securities are stated at amortized cost using the interest method. Bondsin or near default (rated NAIC 6) are stated at the lower of amortized cost or fair value. Refer to Note 9 - Fair ValueMeasurements, for discussion on the valuation approach and methods for bonds.

Loan-backed and structured securities, which are included in bonds, are valued at amortized cost using the interestmethod including current assumptions of projected cash flows. Loan-backed and structured securities in or near default(rated NAIC 6) are stated at the lower of amortized cost or fair value. Amortization of premium or accretion of discountfrom the purchase of these securities considers the estimated timing and amount of cash flows of the underlying loans,including prepayment assumptions based on data obtained from external sources or internal estimates. Projected futurecash flows are updated monthly, and the amortized cost and effective yield of the securities are adjusted as necessaryto reflect historical prepayment experience and changes in estimated future prepayments. For high credit quality loan-backed and structured securities (those rated AA or above at the date of acquisition), the adjustments to amortized costare recorded as a charge or credit to net investment income in accordance with the retrospective method. For loan-backed and structured securities that are not of high credit quality (those rated below AA at date of acquisition), certainfloating rate securities and securities with the potential for a loss of a portion of the original investment due to contractual

prepayments (e.g., interest only securities), the effective yield is adjusted prospectively for any changes in estimatedcash flows. Refer to Note 20 - Fair Value Measurements, for discussion on the valuation approach and methods forbonds.

All acquisitions of securities are recorded in the financial statements on a trade date basis except for the acquisitionsof private placement bonds, which are recorded on the funding date.

Preferred Stocks

Preferred stocks in “good standing” (NAIC designation of 1 to 3) are valued at amortized cost. Preferred stocks “notin good standing” (NAIC designation of 4 to 6) are valued at the lower of amortized cost or fair value. Refer to Note9 - Fair Value Measurements, for discussion on the valuation approach and methods for preferred stocks.

Common Stocks

Common stocks include the Company's investments in unaffiliated stocks and two direct, wholly owned U.S. insurancesubsidiaries: New York Life Insurance and Annuity Corporation ("NYLIAC") and NYLIFE Insurance Company ofArizona ("NYLAZ").

Investments in common stocks of U.S. insurance subsidiaries are carried at the value of their audited underlying U.S.statutory surplus. Unaffiliated common stocks are carried at fair value. Unrealized gains and losses are reflected insurplus, net of deferred taxes. Refer to Note 9 - Fair Value Measurements, for a discussion on the valuation approachand methods for common stocks.

The Company also has investments in non-insurance subsidiaries organized as limited liability companies. Theseinvestments are carried as an asset provided the entity’s U.S. GAAP equity is audited. In the absence of an admissibleaudit, the entire investment is nonadmitted. Generally, each of the Company’s non-insurance subsidiary limited liabilitycompanies, except New York Life Enterprises ("NYLE"), NYLIFE LLC and NYL Investors LLC ("NYL Investors"),has a U.S. GAAP audit and are stated as follows: (1) foreign insurance subsidiaries that have U.S. GAAP audits arestated at U.S. GAAP equity adjusted for certain assets that are disallowed under statutory accounting practices, otherwisethe investment is nonadmitted; (2) non-insurance subsidiaries are carried at U.S. GAAP equity unless they are engagedin certain transactions that are for the benefit of the Company or its affiliates and receive 20% or more of their revenuefrom the Company or its affiliates. In this case, non-insurance subsidiaries are carried at U.S. GAAP equity adjustedfor the same items as foreign insurance subsidiaries; (3) all other assets and liabilities in a downstream holding companyare accounted for in accordance with the appropriate NAIC SAP guidance.

Dividends and distributions from subsidiaries other than those deemed a return of capital (both in the form of commonstock and limited liability companies) are recorded as a component of net investment income when declared and changesin the equity of subsidiaries (both in the form of common stock and limited liability companies) are recorded as unrealizedgains or losses in surplus, net of deferred taxes.

Other than Temporary Impairments

The cost basis of bonds and equity securities is adjusted for impairments in value that are deemed to be other thantemporary. An other-than-temporary loss is recognized in net income when it is anticipated that the amortized cost willnot be recovered. Factors considered in evaluating whether a decline in value is other than temporary include: (1)whether the decline is substantial; (2) the duration that the fair value has been less than cost; (3) the financial conditionand near-term prospects of the issuer; and (4) the Company’s ability and intent to retain the investment for a period oftime sufficient to allow for an anticipated recovery in value.

When a bond (other than loan-backed and structured securities), preferred stock or common stock is deemed other-than-temporarily impaired, the difference between the investments’ amortized cost and its fair value is recognized asa realized loss and reported in net income if the loss is credit related, or deferred in the IMR if interest related for bonds.


NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)

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For loan-backed and structured securities, the entire difference between the security’s amortized cost and its fair valueis recognized in net income only when the Company (a) has the intent to sell the security or (b) it does not have theintent and ability to hold the security to recovery. If neither of these two conditions exists, a realized loss is recognizedin net income for the difference between the amortized cost basis of the security and the net present value of projectedfuture cash flows expected to be collected. The net present value is calculated by discounting the Company’s bestestimate of projected future cash flows at the effective interest rate implicit in the loan-backed or structured securityprior to impairment.

The determination of cash flow estimates in the net present value calculation is subjective and methodologies will vary,depending on the type of security. The Company considers all information relevant to the collectability of the security,including past events, current conditions, and reasonably supportable assumptions and forecasts in developing theestimate of cash flows expected to be collected. This information generally includes, but may not be limited to, theremaining payment terms of the security, estimated prepayment speeds, defaults, recoveries upon liquidation of theunderlying collateral securing the notes, the financial condition of the issuer(s), credit enhancements and other third-party guarantees. In addition, other information, such as industry analyst reports and forecasts, sector credit ratings,the financial condition of the bond insurer for insured fixed income securities and other market data relevant to thecollectability may also be considered, as well as the expected timing of the receipt of insured payments, if any. Theestimated fair value of the collateral may be used to estimate recovery value if the Company determines that the securityis dependent on the liquidation of the collateral for recovery.

The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. In periodssubsequent to the recognition of an other-than-temporary impairment ("OTTI"), the impaired bond security is accountedfor as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reducedpremium) based on the new cost basis may be accreted (or amortized) into net investment income in future periodsbased on prospective changes in cash flow estimates, to reflect adjustments to the effective yield.

Mortgage Loans

Mortgage loans on real estate are carried at unpaid principal balances, net of discounts, premiums, deferred originationfees, and specific valuation allowances, and are collateralized. Specific valuation allowances are established for theexcess carrying value of the mortgage loan over the estimated fair value of the collateral as an unrealized loss in surpluswhen it is probable that based on current information and events that the Company will be unable to collect all amountsdue under the contractual terms of the loan agreement. Fair value of the collateral is estimated by performing an internalor external current appraisal. If impairment is deemed to be other-than-temporary, which can include a loan modificationthat qualifies as a troubled debt restructuring (“TDR”), a direct write-down is recognized as a realized loss reported innet income, and a new cost basis for the individual mortgage loan, which is equal to the fair value of the collateral, lesscosts to obtain and sell, is established. Refer to Note 9 - Fair Value Measurements, for discussion on the valuationapproach and methods for mortgage loans.

The Company accrues interest income on mortgage loans to the extent it is deemed collectible. The Company placesloans on non-accrual status, and ceases to recognize interest income when management determines that the collectionof interest and repayment of principal is not probable. Any accrued but uncollected interest is reversed out of interestincome once a loan is put on non-accrual status. Interest payments received on mortgage loans where interest paymentshave been deemed uncollectible are recognized on a cash basis and recorded as interest income. If a determination ismade that the principal will not be collected, the interest payment received is used to reduce the principal balance. Ifa mortgage loan has any investment income due and accrued that is 90 days past due and collectible, the investmentincome will continue to accrue but all accrued interest related to the mortgage loan is reported as a nonadmitted asset,until such time that it has been paid or is deemed uncollectible.



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Real Estate

Real estate includes properties that are directly-owned real estate properties and real estate property investments thatare directly and wholly-owned through a limited liability company and meet certain criteria. Real estate held for theproduction of income and home office properties are stated at cost less accumulated depreciation and encumbrances.Real estate held for sale is stated at the lower of cost less accumulated depreciation or fair value, less encumbrancesand estimated costs to sell, which may result in an OTTI recognized as a realized loss in net income. Depreciation ofreal estate held for the production of income and home office properties is calculated using the straight-line methodover the estimated lives of the assets, generally 40 years. Costs of permanent improvements are depreciated over theirestimated useful life.

Policy Loans

Policy loans are stated at the aggregate balance due. The excess of the unpaid balance of a policy loan that exceeds thecash surrender value is nonadmitted.

Limited Partnerships and Limited Liability Companies

Limited partnerships and limited liability companies which have admissible audits are carried at the underlying auditedequity of the investee. The financial statements of equity method investees are usually not received sufficiently timelyfor the Company to apply the equity method at each reporting period. Therefore, the equity pick-up on these investmentshas been recorded on a one to three-month lag.

The cost basis of limited partnerships is adjusted for impairments in value deemed to be other-than-temporary, withthe difference between cost and carrying value, which approximates fair value, recognized as a realized loss reportedin net income. The new cost basis of an impaired limited partnership is not adjusted for subsequent increases in theunderlying audited equity of the investee. The Company nonadmits the entire investment when an admissible audit isnot performed. Dividends and distributions from limited partnerships and limited liability companies, other than thosedeemed a return of capital, are recorded in net investment income. Undistributed earnings are included in unrealizedgains and losses and are reflected in surplus, net of deferred taxes.

Low-Income Housing Tax Credit (“LIHTC”) investments, which are included in limited partnerships and other investedassets, are recorded at proportional amortized cost and include remaining unfunded commitments. The carrying valueof the investment is amortized into income in proportion to the actual and projected future amounts of tax credits anddeductible losses. The amortization is recorded through net investment income.

Derivative Instruments

Derivative instruments that qualify and are designated for hedge accounting are valued in a manner consistent with theitems being hedged. Periodic payments and receipts on these derivatives are recorded on an accrual basis within netinvestment income for hedges of fixed income securities, other income for hedges of liabilities, and net realized capitalgains and losses for hedges of net investments in foreign operations. Net realized gains and losses are recognized upontermination or maturity of these contracts in a manner consistent with the hedged item and when subject to the IMR,are transferred to the IMR, net of taxes.

Derivative instruments that do not qualify or are not designated for hedge accounting are carried at fair value andchanges in fair value are recorded in surplus as unrealized gains and losses, net of deferred taxes. Periodic paymentsand receipts on these derivatives are recorded on an accrual basis within net investment income for hedges of fixedincome securities and other income for hedges of liabilities and net realized capital gains and losses for hedges offoreign net investments and credit default swaps. Upon termination or maturity the gains or losses on these contractsare recognized in net realized capital gains and losses, net of taxes. Realized gains or losses on terminated ormatured derivatives, which are subject to the IMR, are transferred to the IMR, net of taxes.



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Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments that haveoriginal maturities of three months or less at date of purchase and are carried at amortized cost. Cash and cash equivalentsalso include money market mutual funds which are stated at fair value. Short-term investments consist of securitieswith remaining maturities of one year or less, but greater than three months at the time of acquisition and are carriedat amortized cost, which approximates fair value.

Asset Valuation Reserve

The AVR is used to stabilize surplus from fluctuations in the market value of bonds, stocks, mortgage loans, real estate,limited partnerships and other investments. Changes in the AVR are accounted for as direct increases or decreases insurplus. The IMR captures interest related realized gains and losses on sales (net of taxes) of bonds, preferred stocks,mortgage loans, interest related other-than-temporary impairments (net of taxes) and realized gains or losses (net oftaxes) on terminated interest rate related derivatives which are amortized into net income over the expected years tomaturity of the investments sold or the item being hedged using the grouped method. An interest related other-than-temporary impairment occurs when the Company has the intent to sell an investment at the reporting date, beforerecovery of the cost of the investment. For loan-backed and structured securities, the non-interest related other-than-temporary impairment is booked to the AVR, and the interest related portion to the IMR.

Loaned Securities and Repurchase Agreements

The Company enters into securities lending agreements whereby certain investment securities are loaned to third-parties. Securities loaned are treated as financing arrangements. With respect to securities loaned, in order to reducethe Company’s risk under these transactions, the Company requires initial cash collateral equal to 102% of the fairvalue of domestic securities loaned. The Company records an offsetting liability in amounts payable under securitylending agreements. The Company monitors the fair value of securities loaned with additional collateral obtained asnecessary. The borrower of the loaned securities is permitted to sell or repledge those securities.

The Company enters into dollar roll repurchase agreements to sell and repurchase securities. Assets to be repurchasedare the same, or substantially the same, as the assets sold. The Company agrees to sell securities at a specified priceand repurchase the securities at a lower price. The Company receives cash in the amount of the sales proceeds andestablishes a liability equal to the repurchase amount. The difference between the sale and repurchase amounts representsdeferred income which is earned over the life of the agreement. The liability for repurchasing the assets is included inborrowed money.

The Company enters into tri-party reverse repurchase agreements to purchase and resell short-term securities. TheCompany receives securities as collateral, having a fair value at least equal to 102% of the purchase price paid by theCompany for the securities and the Company’s designated custodian takes possession of this collateral. The Companyis not permitted to sell or repledge these securities. The collateral is not recorded on the Company’s financial statements.However, if the counterparty defaults, the Company would then exercise its rights with respect to the collateral, includinga sale of the collateral. The fair value of the securities held as collateral is monitored daily and additional collateral isobtained, where appropriate, to protect against credit exposure. The Company records the amount paid for securitiespurchased under agreements to resell in cash, cash equivalents and short-term investments.

Premiums and Related Expenses

Life premiums are recognized as revenue when due. Annuity considerations are recognized as revenue when received.Commissions and other costs associated with acquiring new business are charged to operations as incurred. Premiumson guaranteed interest contracts (“GICs”) with purchase rate guarantees, which introduce an element of mortality risk,are recorded as income when received. Amounts received or paid under deposit type contracts without mortality ormorbidity risk are not reported as income or benefits but are recorded directly as an adjustment to the liability fordeposit funds.



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Investments

Income from investments, including amortization of premium, accrual of discount and similar items, is recorded withinnet investment income, unless otherwise stated herein.

Dividends to Policyholders

The liability for dividends to policyholders consists principally of dividends expected to be paid during the subsequentyear. The allocation of dividends is approved annually by the Board of Directors and is determined by means of formulas,which reflect the relative contribution of each group of policies to divisible surplus. A portion of the Company's 2018annual declaration of policyholder dividends included a guarantee of a minimum aggregate amount of dividends to bepaid.

Policy Reserves

Policy reserves are based on mortality tables and valuation interest rates, which are consistent with statutory requirementsand are designed to be sufficient to provide for contractual benefits. The Company holds reserves greater than thosedeveloped under the minimum statutory reserving rules when the valuation actuary determines that the minimumstatutory reserves are inadequate. Actual results could differ from these estimates and may result in the establishmentof additional reserves. The valuation actuary monitors actual experience and, where circumstances warrant, revisesassumptions and the related estimates for policy reserves. Refer to Note 12 - Insurance Liabilities, for a discussion ofreserves in excess of minimum NAIC requirements.

Federal Income Taxes

Current federal income taxes are charged or credited to operations based upon amounts estimated to be payable orrecoverable as a result of taxable operations for the current year and any adjustments to such estimates from prior years.Deferred federal income tax assets (“DTAs”) and deferred federal income tax liabilities (“DTLs”) are recognized forexpected future tax consequences of temporary differences between statutory and taxable income. Temporary differencesare identified and measured using a balance sheet approach whereby statutory and tax balance sheets are compared.Changes in DTAs and DTLs are recognized as a separate component of surplus (except for the net deferred tax assetrelated to unrealized gains, which is included in unrealized gains and losses). Net DTAs are admitted to the extentpermissible under NAIC SAP. Gross DTAs are reduced by a statutory valuation allowance, if it is more likely than notthat some portion or all of the gross DTA will not be realized. The Company is required to establish a tax loss contingencyif it is more likely than not that a tax position will not be sustained. The amount of the contingency reserve ismanagement’s best estimate of the amount of the original tax benefit that could be reversed upon audit, unless the bestestimate is greater than 50% of the original tax benefit, in which case the reserve is equal to the entire tax benefit.

The Company files a consolidated federal income tax return with certain of its domestic insurance and non-insurancesubsidiaries. The consolidated income tax provision or benefit is allocated among the members of the group in accordancewith a tax allocation agreement. This tax allocation agreement provides that each member of the group computes itsshare of the consolidated tax provision or benefit, in general, on a separate company basis, and may, where applicable,include the tax benefits of operating or capital losses utilizable in the Company's consolidated returns. Intercompanytax balances are settled quarterly on an estimated basis with a final settlement occurring within 30 days of the filing ofthe consolidated tax return. Current federal income taxes are charged or credited to operations based upon amountsestimated to be payable or recoverable as a result of taxable operations for the current year and any adjustments to suchestimates from prior years.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law, making significant changes to theU.S. Internal Revenue Code ("IRC").



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On February 8, 2018, the NAIC issued Interpretation 18-01 ("INT 18-01") to address the reporting and updating ofestimates that companies are required to reflect as various accounting adjustments in their financial statements as aresult of the TCJA. This guidance provides that, although some accounting computations may be considered complete,other accounting computations or assessments may be considered incomplete when the financial statements are filed.As such, for those items which are incomplete but for which a reasonable estimate can be made, those amounts shouldbe recorded as provisional in the financial statements not to extend beyond one year of the TCJA enactment date ofDecember 22, 2017. See Note 16 - Income Taxes for additional information on the TCJA and the INT 18-01 provisionalamounts.

Separate Accounts

The Company has established both non-guaranteed and guaranteed separate accounts with varying investment objectiveswhich are segregated from the Company’s general account and are maintained for the benefit of separate accountspolicyholders. The Company has market value guaranteed separate accounts, for which supplemental separate accountassets are used to fund the excess of the actuarial liability for future guaranteed payments over the market value of theassets. Assets held in non-guaranteed separate accounts and market value guaranteed separate accounts are stated atmarket value. Assets held in guaranteed book value separate accounts are carried at the same basis as the generalaccount.

The liability for separate accounts represents policyholders’ interests in the separate accounts assets, excluding liabilitiesrepresenting due and accrued transfers to the general account. The liability for non-guaranteed and guaranteed marketvalue separate accounts represents policyholders’ interests in the separate accounts assets, including accumulated netinvestment income and realized and unrealized gains and losses on those assets. For the book value guaranteed separateaccount, the liability represents amounts due to policyholders pursuant to the terms of the contract.

Funds Held Under Coinsurance

Funds held under coinsurance primarily represent balances payable related to certain reinsurance assumed contractsthat were partially retroceded. The balances are determined based on the percent of the liabilities retroceded, includingcertain insurance related payables and receivables as stipulated by the reinsurance agreements. Refer to Note 13 -Reinsurance, for additional discussion on assumed reinsurance.

Other Assets and Liabilities

Other assets primarily consist of cash value on corporate owned life insurance, net DTA, current tax receivable,receivables from subsidiaries and affiliates, and interest in annuity contracts. Corporate owned life insurance is carriedat cash surrender value with changes in cash surrender value reported in other income in the accompanying StatutoryStatements of Operations.

Other liabilities primarily consistof accrued expenses, amounts withheld by the Company, employee benefit planliabilities, derivative liabilities, current tax liabilities, and obligations under structured settlement agreements.

Nonadmitted Assets

Under statutory accounting practices, certain assets are designated as nonadmitted assets and are not included in theaccompanying Statutory Statements of Financial Position since these assets are not permitted by the NYSDFS to betaken into account in determining the Company’s financial condition. Nonadmitted assets typically include furnitureand equipment, agents' debit balances, DTA not realizable within three years, receivables over 90 days old andoverfunded plan assets on qualified benefit plans. Changes to nonadmitted assets are reported as a direct adjustmentto surplus in the accompanying Statutory Statements of Changes in Surplus.



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Fair Value of Financial Instruments and Insurance Liabilities

Fair value of various assets and liabilities are included throughout the notes to the financial statements. Specifically,fair value disclosure of investments held is reported in Note 6 - Investments. Fair values for derivative instruments areincluded in Note 7 - Derivative Instruments and Risk Management. Fair values for insurance liabilities are reported inNote 12 - Insurance Liabilities. The aggregate fair value of all financial instruments summarized by type is includedin Note 9 - Fair Value Measurements.

Contingencies

Amounts related to contingencies are accrued if it is probable that a liability has been incurred and an amount isreasonably estimable.

At the inception of a guarantee (except unlimited guarantees and guarantees made to or on behalf of wholly ownedsubsidiaries), the Company recognizes an initial liability at fair value for the obligations it has undertaken, regardlessof the probability of performance under the guarantee. This includes guarantees made on behalf of affiliates other thanwholly owned subsidiaries unless the guarantee is deemed unlimited.

Foreign Currency Translation and Transactions

The Company’s Canadian insurance operations are stated in Canadian dollars, with a single foreign currency adjustmentof the net value reflected in unrealized gains and losses as a component of surplus. For all other foreign currency items,income and expenses are translated at the average exchange rate for the period while assets and liabilities are translatedusing the spot rate in effect at the date of the statements. Changes in the asset and liability values due to fluctuationsin foreign currency exchange rates including translating foreign investments included in limited partnerships and otherinvested assets are recorded as unrealized capital gains and losses in surplus until the asset is sold or exchanged or theliability is settled. Upon settlement, previously recorded unrealized capital gains and losses are reversed, and the foreignexchange gain or loss for the entire holding period is recorded as a realized capital gain or loss in net income.

Benefit Plans

The Company maintains various tax-qualified and non-qualified plans that provide defined benefit pension and otherpostretirement benefits covering eligible U.S. employees and agents. A December 31st measurement date is used forall defined benefit pension and other postretirement benefit plans.

The Company recognizes the funded status of each of the pension and postretirement plans on the accompanyingStatutory Statements of Financial Position. The funded status of a plan is measured as the difference between planassets at fair value and the projected benefit obligation (“PBO”) for pension plans or the accumulated postretirementbenefit obligation (“APBO”) for other postretirement plans.

The PBO is defined as the actuarially calculated present value of vested and non-vested pension benefits accrued basedon service accruals through the measurement date and anticipated future compensation levels. This is the basis uponwhich pension liabilities and net periodic benefit cost are determined. The PBO of the defined benefit pension plansis determined using a variety of actuarial assumptions, from which actual results may vary.

The APBO represents the actuarially calculated present value of other postretirement benefits attributed to employeeservices rendered through the measurement date. This is the valuation basis upon which postretirement benefit liabilitiesand net periodic postretirement benefit cost are determined. The APBO is determined using a variety of actuarialassumptions, from which actual results may vary.

For pension and postretirement benefits, the Company recognizes the net periodic benefit cost as an expense in theaccompanying Statutory Statements of Operations.



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Net periodic benefit cost is determined using management estimates and actuarial assumptions to derive service cost,interest cost, and expected return on plan assets for a particular year. Net periodic benefit cost also includes the applicableamortization of any prior service cost (credit) arising from the increase (decrease) in prior years’ benefit costs due toplan amendments. These costs are amortized into net periodic benefit cost over the expected service years of employeeswhose benefits are affected by such plan amendments. Actual experience related to plan assets and/or the benefitobligations may differ from that originally assumed when determining net periodic benefit cost for a particular periodand future assumptions may change, resulting in gains or losses. To the extent such aggregate gains or losses exceed10 percent of the greater of the benefit obligations or the market value of assets of the plan; they are amortized into netperiodic benefit cost over the expected service years of employees expected to receive benefits under the plans.

The obligations and expenses associated with these plans require an extensive use of assumptions such as the discountrate, expected rate of return on plan assets, rate of future compensation increases, healthcare cost trend rates, as wellas assumptions regarding participant demographics such as rate and age at retirements, withdrawal rates, and mortality.Management, in consultation with its external consulting actuarial firm, determines these assumptions based upon avariety of factors such as historical performance of the plan and its assets, currently available market and industry data,and expected benefit payout streams. The assumptions used may differ materially from actual results due to, amongother factors, changing market and economic conditions and changes in participant demographics.

The Company also sponsors tax-qualified defined contribution plans for substantially all U.S. employees and agents.The defined contribution plan for employees matches a portion of employees’ contributions. Accordingly, the Companyrecognizes compensation cost for current matching contributions. The defined contribution plan for agents providesfor discretionary Company contributions for eligible agents. Accordingly, the Company recognizes compensation costfor current discretionary contributions. As all contributions are transferred timely to the trust for these plans, no liabilityfor matching or discretionary contributions is recognized in the accompanying Statutory Statements of FinancialPosition.

The Company also maintains for certain eligible participants a non-qualified unfunded arrangement that credits deferralamounts and matching contributions with respect to compensation in excess of the amount that may be taken intoaccount under the tax-qualified defined contribution plan because of applicable Internal Revenue Service (“IRS”) limits.Accordingly, the Company recognizes compensation cost for current matching contributions and holds a liability forthese benefits, which is included in other liabilities in the accompanying Statutory Statements of Financial Position.

The Company provides certain benefits to eligible employees during employment for paid absences and afteremployment but before retirement. A liability for these benefits is accrued when the benefit is incurred.



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NOTE 4 – BUSINESS RISKS AND UNCERTAINTIES

The Company is exposed to an array of risks, including, but not limited to, regulatory actions, financial risk, risksassociated with its investments and operational risk, including cyber security.

The Company is regulated by the insurance departments of the states and territories where it is licensed to do business.Although the federal government does not directly regulate the business of insurance, federal legislation andadministrative policies can significantly and adversely affect the insurance industry and the Company. The Companyis unable to predict whether any administrative or legislative proposals, at either the federal or state level, will beadopted in the future, or the effect, if any, such proposals would have on the Company.

The Company's insurance liabilities and assets under management are exposed to market risk, policyholder behaviorrisk and mortality/longevity risk. Market volatility and other equity market conditions may affect the Company’sexposure to risks related to guaranteed death benefits and guaranteed living benefits on variable products. Furthermore,the level of sales of the Company’s insurance and investment products is influenced by many factors, including generalmarket rates of interest, the strength, weakness and volatility of equity markets, and terms and conditions of competingproducts.

The Company is exposed to the risks normally associated with an investment portfolio, which include interest rate,liquidity, credit and counterparty risks. The Company controls its exposure to these risks by, among other things, closelymonitoring and managing the duration and cash flows of its assets and liabilities, maintaining a large percentage of itsportfolio in highly liquid securities, engaging in a disciplined process of underwriting, reviewing and monitoring creditrisk, and by devoting significant resources to develop and periodically update its risk management policies andprocedures.

The Company relies on technology systems and solutions to conduct business and to retain, store and manage confidentialinformation. The failure of the Company’s technology systems and solutions, or those of a vendor, for any reason hasthe potential to disrupt its operations, result in the loss of customer business, damage the Company’s reputation, andexpose the Company to litigation and regulatory action, all of which could adversely impact its profitability.


NOTE 4 – BUSINESS RISKS AND UNCERTAINTIES (continued)

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NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS

Changes in Accounting Principles

Accounting changes adopted to conform to the provisions of NAIC SAP or other state prescribed accounting practicesare reported as changes in accounting principles. The cumulative effect of changes in accounting principles is generallyreported as an adjustment to unassigned surplus in the period of the change in accounting principle. Generally, thecumulative effect is the difference between the amount of capital and surplus at the beginning of the year and the amountof capital and surplus that would have been reported at that date if the new accounting principles had been appliedretroactively for all prior periods.

In 2018, the NAIC adopted revisions to SSAP 21 "Other Admitted Assets." The revisions provide clarifying guidancewhen the reporting entity is the owner and beneficiary of a life insurance policy. Specifically, the guidance requiresfor the life insurance policy to meet the life insurance criteria provided in Internal Revenue Code §7702 in order to bean admitted asset. Adoption of this guidance did not have an impact on the Company. The revised guidance also requiresnew disclosures, which have been included in Note 11 - Related Party Transactions.

In 2017, the NAIC adopted revisions to SSAP 37 “Mortgage Loans.” The revisions clarify the types of mortgage loantransactions that qualify for accounting and reporting under SSAP 37 in instances where the reporting entity is not theonly lender in a mortgage loan transaction. The revisions also incorporate additional disclosures. The adoption ofthese revisions did not have an impact on the Company’s statement of financial positions or results of operations. Newdisclosures related to the adoption of this guidance are included in Note 6- Investments.

In 2016, the NAIC adopted revisions to SSAP 103 “Transfers and Servicing of Financial Assets.” The revisionsincorporate new required disclosures for repurchase and reverse repurchase transactions with an effective date ofDecember 31, 2017. New disclosures related to the adoption of this guidance are included in Note 6 - Investments.

Future Adoption of New Accounting Pronouncements

In 2016, the NAIC announced that enough states had passed the new standard valuation law to make the PrincipleBased Reserving ("PBR") valuation manual operative for individual life products. Under PBR, companies will holdreserves at the higher of the three basis; a) the formulaic reserve using prescribed factors or b) the reserve computedunder a single economic scenario using justified company experience assumptions which consists of mortality, expensesand policyholder behavior among other assumptions or c) the reserve based on a wide range of future economicconditions using justified company experience assumptions which consists of mortality, expenses and policyholderbehavior among other assumptions. Products passing certain specified exclusion tests may be exempt from thecalculation of reserves under b) and/or c) above. The new standard is mandatory for policies issued on or after January1, 2020. NYSDFS has not yet provided clarification on whether it plans to adopt PBR in its entirety or with modifications.The Company will continue to monitor this and will assess the impact of the guidance on the financial statements uponfurther clarification from NYSDFS.

NOTE 6 - INVESTMENTS


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Bonds

The carrying value and estimated fair value of bonds at December 31, 2018 and 2017, by maturity were as follows (inmillions):

2018 2017

Carrying Value Estimated FairValue Carrying Value Estimated Fair

ValueDue in one year or less $ 4,601 $ 4,650 $ 4,804 $ 4,910Due after one year through five years 26,693 26,946 25,714 26,688Due after five years through ten years(1) 38,550 38,311 34,698 35,924Due after ten years 36,233 38,225 32,960 37,251 Total $ 106,077 $ 108,132 $ 98,176 $ 104,773

(1) Includes affiliated bonds issued by Madison Capital Funding LLC ("MCF") and New York Life Investment Management HoldingsLLC ("NYL Investments"). Refer to Note 11 - Related Party Transactions for a more detailed discussion of related party investments.

Corporate bonds are shown based on contractual maturity. Expected maturities may differ from contractual maturitiesbecause issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgageand asset-backed securities ("ABS") are not due at a single maturity date and therefore are shown based on the expectedcash flows of the underlying loans, which includes estimates of anticipated future prepayments. In addition to the information disclosed above, short-term investments with a carrying value of $16 million and $14million at December 31, 2018 and 2017, respectively, and cash equivalents with a carrying value of $2,994 million and$2,451 million at December 31, 2018 and 2017, respectively, are due in one year or less. Carrying value approximatesfair value for these investments.At December 31, 2018 and 2017, the distribution of gross unrealized gains and losses on bonds were as follows (inmillions):

2018Carrying

ValueUnrealized

GainsUnrealized

LossesEstimatedFair Value

U.S. governments $ 5,088 $ 404 $ 60 $ 5,432All other governments 942 143 3 1,082U.S. special revenue and special assessment 22,461 1,290 289 23,462Industrial and miscellaneous unaffiliated 74,825 2,275 1,707 75,393Parent, subsidiaries, and affiliates 2,760 2 — 2,762Hybrid securities 1 — — 1Total $ 106,077 $ 4,114 $ 2,059 $ 108,132

2017Carrying

ValueUnrealized

GainsUnrealized

LossesEstimatedFair Value

U.S. governments $ 5,420 $ 567 $ 59 $ 5,928All other governments 977 178 1 1,154

U.S. special revenue and special assessment 20,256 1,779 133 21,903Industrial and miscellaneous unaffiliated 68,815 4,403 289 72,928Parent, subsidiaries, and affiliates 2,707 152 — 2,859Hybrid securities 1 — — 1Total $ 98,176 $ 7,079 $ 482 $ 104,773

Common and Preferred Stocks

The following table represents the carrying value and change in unrealized gains (losses) of common and preferredstocks at December 31, 2018 and 2017 (in millions):

2018 2017

Carrying Value

Change inUnrealized

Gains (Losses) Carrying Value

Change inUnrealized

Gains (Losses)Common stock insurance subsidiaries $ 8,890 $ (408) $ 9,297 $ 469Unaffiliated common stock 1,363 (158) 1,439 102Preferred stock 65 1 71 (1) Total $ 10,318 $ (565) $ 10,807 $ 570

Mortgage Loans

The Company’s mortgage loans are diversified by property type, location and borrower, and are collateralized. Themaximum and minimum lending rates for new commercial mortgage loans funded during 2018 were 8.4% and 3.4%and funded during 2017 were 10.6% and 2.6%, respectively. The maximum percentage of any one commercial loan tothe value of the collateral at the time of the loan, exclusive of insured or guaranteed or purchase money mortgages,was 92.4% (average percentage was 53.1% and 52.3% at December 31, 2018 and December 31, 2017, respectively).The maximum percentage of any residential loan to the value of the collateral at the time of the loan was 80% (averagepercentage was 45.8% and 41.1% at December 31, 2018 and December 31, 2017, respectively). The Company has nosignificant credit risk exposure to any one individual borrower.


NOTE 6 - INVESTMENTS (continued)

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Under certain mortgage loan agreements, the Company and other unrelated third party lenders hold interest in themortgage loans. Under these agreements, the Company is not able to unilaterally foreclose on the mortgage loan in anevent of default. At December 31, 2018 and 2017, the Company had mortgage loans outstanding under this type ofagreement of $2,920 million and $2,309 million, respectively. In addition, NYLIAC participates in mortgage loansoriginated by the Company whereby NYLIAC’s consent may be required in order to foreclose on a mortgage loan.Refer to Note 11-Related Party Transactions, for more detail on these transactions.

At December 31, 2018 and 2017, the distribution of the mortgage loan portfolio by property type and geographiclocation was as follows ($ in millions):

2018 2017Carrying Value % of Total Carrying Value % of Total

Property type: Apartment buildings $ 5,907 33.7% $ 4,222 26.9% Office buildings 4,625 26.3% 4,496 28.7% Retail facilities 3,732 21.3% 3,908 24.9% Industrial 3,047 17.4% 2,759 17.6% Hotels 233 1.3% 250 1.6% Residential 4 —% 6 0.1% Other 6 —% 35 0.2% Total $ 17,554 100.0% $ 15,676 100.0%

2018 2017Carrying Value % of Total Carrying Value % of Total

Geographic location: South Atlantic $ 4,870 27.7% $ 4,222 26.9% Central 4,454 25.4% 3,617 23.1% Pacific 3,477 19.8% 3,305 21.1% Middle Atlantic 3,420 19.5% 3,166 20.2% New England 1,333 7.6% 1,285 8.2% Other — —% 81 0.5% Total $ 17,554 100.0% $ 15,676 100.0%

At both December 31, 2018 and 2017, less than $1 million of mortgage loans were past due 90 days and over.

The Company maintains a watchlist of mortgage loans that may potentially be impaired. The general guidelines analyzedto include commercial loans within the watchlist are loan-to-value ratio (“LTV”), asset performance such as debt servicecoverage ratio, lease rollovers, income and expense hurdles, major tenant or borrower issues, the economic climate,and catastrophic events, among others. Loans placed on the watchlist generally take priority in being revalued in theCompany’s inspection/evaluation commercial loan program that revalues properties securing commercial loans. Theguideline for analyzing residential loans occurs once a loan is 60 or more days delinquent. At that point, an appraisalor broker's price opinion of the underlying asset is obtained.



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Fair value of the collateral for commercial mortgages (excluding credit loans) over $5 million is updated triennially,unless a more current appraisal is warranted. Commercial mortgages less than $5 million have an on-site inspectionperformed by an external inspection service every 3 years. If the loan is determined to be troubled, the loan is morefrequently monitored as to its status. LTV, which is based on collateral values, is deemed as one of the key mortgageloan indicators to assess credit quality and to assist in identifying problem loans. At December 31, 2018 and 2017,LTVs on the Company’s mortgage loans were as follows (in millions):

2018Loan to Value% (By Class)

ApartmentBldgs

OfficeBldgs

RetailFacilities Industrial Hotel Residential Other Total

Above 95% $ — $ — $ — $ — $ — $ — $ — $ —91% to 95% — — — — — — — —81% to 90% — 89 — — — — — 8971% to 80% 651 — 163 — — — — 814below 70% 5,256 4,536 3,569 3,047 233 4 6 16,651

Total $ 5,907 $ 4,625 $ 3,732 $ 3,047 $ 233 $ 4 $ 6 $ 17,554

2017Loan to Value% (By Class)

ApartmentBldgs

OfficeBldgs

RetailFacilities Industrial Hotel Residential Other Total

Above 95% $ — $ — $ — $ — $ — $ — $ — $ —91% to 95% — — — — — — — —81% to 90% — 73 — — — — — 7371% to 80% 369 36 211 8 — 1 — 625below 70% 3,853 4,386 3,697 2,751 250 5 36 14,978

Total $ 4,222 $ 4,495 $ 3,908 $ 2,759 $ 250 $ 6 $ 36 $ 15,676

Real Estate

At December 31, 2018 and 2017, the carrying value of the Company's real estate portfolio consisted of the following(in millions):

2018 2017Properties for Company use $ 265 $ 246Investment property 1,215 1,255Acquired through foreclosure 5 23Total real estate $ 1,486 $ 1,524

Accumulated depreciation on real estate at December 31, 2018 and 2017 was $557 million and $493 million,respectively. Depreciation expense for the years ended December 31, 2018 and 2017 was $51 million and $47 million,respectively, and was recorded as an investment expense, a component of net investment income in the accompanyingStatutory Statements of Operations.

In addition to the above, the Company owns real estate in certain proprietary LLC structures, which are included within“Limited partnerships and other invested assets” in the accompanying Statutory Statements of Financial Position, of$867 million and $818 million for the years ended December 31, 2018 and 2017, respectively.



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Limited Partnerships and Other Invested Assets

The carrying value of limited partnerships and other invested assets at December 31, 2018 and 2017 consisted of thefollowing (in millions):

2018 2017Limited partnerships and limited liability companies(1) $ 8,066 $ 7,217Affiliated non-insurance subsidiaries 1,136 1,789Other invested assets 118 124LIHTC investments 145 202Loans to affiliates 116 125 Total limited partnerships and other invested assets $ 9,581 $ 9,457

(1) At December 31, 2018 and 2017, the Company had $93 million and $114 million, respectively, of investments in limitedpartnerships and limited liability companies that were nonadmitted, and therefore, excluded from the amounts.

Net investment income (loss) and change in unrealized gains (losses) for limited partnerships and other invested assetsfor the years ended December 31, 2018 and 2017 consisted of the following (in millions):

2018 2017Net

InvestmentIncome (Loss)

Change inUnrealized

Gains (Losses)

NetInvestment

Income (Loss)

Change inUnrealized

Gains (Losses)Limited partnerships and limited liability companies $ 749 $ 179 $ 961 $ (71)Affiliated non-insurance subsidiaries 312 (193) 157 261Other invested assets 6 — 5 —LIHTC investments (46) — (105) —Loans to affiliates 5 (3) 4 — Total limited partnerships and other invested assets $ 1,026 $ (17) $ 1,022 $ 190

Limited partnerships and limited liability companies primarily consist of limited partnership interests in leveragedbuy-out funds, real estate and other private equity investments. Distributions, other than those deemed a return ofcapital, are recorded as net investment income. Undistributed earnings are included in unrealized gains and losses insurplus.

Affiliated non-insurance subsidiaries consist of the Company’s limited liability company investments in NYLInvestments, NYL Investors, NYLE, NYLIFE LLC and MCF. Refer to Note 11 - Related Party Transactions for a moredetailed discussion of the Company's transactions with related parties. Dividends are recorded in net investment incomewhen declared and changes in the equity of subsidiaries are recorded in unrealized gains and losses in surplus in theaccompanying Statutory Statements of Financial Position.

Other invested assets consist primarily of investments in surplus notes and other investments with characteristics ofdebt. Interest earned on these investments is included in net investment income in the accompanying Statutory Statementsof Operations.



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The Company receives tax credits related to its investments in LIHTC partnerships. The Company’s unexpired taxcredits on its investments in LIHTC expire within a range of 1 year to 11 years. During 2018 and 2017, the Companyrecorded amortization on these investments under the proportional amortized cost method which is included in netinvestment income of $46 million and $105 million, respectively. The Company recorded tax credits and other taxbenefits on these investments of $72 million and $90 million for 2018 and 2017, respectively. The minimum holdingperiod required for the Company’s LIHTC investments extends from 1 year to 13 years. The LIHTC investments areperiodically subject to regulatory reviews by housing authorities where the properties are located. The Company is notaware of any adverse issues related to such regulatory reviews. The Company’s investment in LIHTC partnershipsincludes $15 million and $24 million of unfunded commitments at December 31, 2018 and 2017, respectively.

For loans to affiliates, refer to Note 11 - Related Party Transactions, which includes a more detailed discussion of theCompany's loans to affiliates.

Assets on Deposit or Pledged as Collateral

At December 31, 2018 and 2017, the Company’s restricted assets (including pledged collateral) were as follows ($ inmillions):

2018Gross (Admitted and Nonadmitted) Restricted Percentage

Restricted Asset Category

TotalGeneralAccount

(G/A)

TotalFrom

Prior YearIncrease

(Decrease)

TotalAdmittedRestricted

Gross(Admitted andNon-admitted)Restricted toTotal Assets

AdmittedRestricted to

Total AdmittedAssets

Collateral held under securitylending agreements $ 652 $ 678 $ (26) $ 652 0.36% 0.36%Subject to reverse repurchaseagreements 342 315 27 342 0.19% 0.19%Subject to dollar repurchaseagreements — — — — —% —%Letter stock or securitiesrestricted as to sale -excluding Federal Home LoanBank ("FHLB") capital stock 32 22 10 32 0.02% 0.02%FHLB capital stock 202 156 46 202 0.11% 0.11%On deposit with states 250 227 23 250 0.14% 0.14%Pledged as collateral to FHLB(including assets backingfunding agreements) 3,584 2,630 954 3,584 1.97% 1.99%Reinsurance collateral assets(1) 10,134 10,565 (431) 10,134 5.58% 5.63%Total restricted assets $ 15,196 $ 14,593 $ 603 $ 15,196 8.37% 8.44%

(1) Includes assets of $8,674 million which are permanently restricted and inure solely to the benefit of the reinsured policyholders.



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2017Gross (Admitted and Nonadmitted) Restricted Percentage

Restricted Asset Category

TotalGeneralAccount

(G/A)

TotalFrom

Prior YearIncrease

(Decrease)

TotalAdmittedRestricted

Gross(Admitted andNon-admitted)Restricted toTotal Assets

AdmittedRestricted to

Total AdmittedAssets

Collateral held under securitylending agreements $ 678 $ 653 $ 25 $ 678 0.38% 0.38%Subject to reverse repurchaseagreements 315 309 6 315 0.18% 0.18%Subject to dollar repurchaseagreements — — — — —% —%Letter stock or securities restricted asto sale - excluding FHLB capitalstock 22 20 2 22 0.01% 0.01%FHLB capital stock 156 143 13 156 0.09% 0.09%On deposit with states 227 218 9 227 0.13% 0.13%Pledged as collateral to FHLB(including assets backing fundingagreements) 2,630 2,279 351 2,630 1.48% 1.49%Reinsurance collateral assets(1) 10,565 11,015 (450) 10,565 5.93% 5.98%Total restricted assets $ 14,593 $ 14,637 $ (44) $ 14,593 8.20% 8.26%

(1) Includes assets of $8,930 million which are permanently restricted and inure solely to the benefit of the reinsured policyholders.

Loaned Securities and Repurchase Agreements

The Company participates in securities lending programs whereby securities, which are included in investments, areloaned to third-parties for the purpose of enhancing income on securities held through reinvestment of cash collateralreceived upon lending. For securities lending transactions, the Company requires initial collateral, usually in the formof cash, equal to 102% of the fair value of domestic securities loaned. The borrower of the loaned securities is permittedto sell or repledge those securities. At December 31, 2018 and 2017, the Company recorded cash collateral receivedunder these agreements of $652 million and $678 million, respectively, and established a corresponding liability forthe same amount, which is included in amounts payable under security lending agreements. For securities lendingtransactions, the carrying value of securities classified as bonds and on loan at December 31, 2018 was $660 million,with a fair value of $638 million. At December 31, 2017, the carrying value was $635 million, with a fair value of $664million. The reinvested collateral is reported in bonds, and cash, cash equivalent and short-term investments in theaccompanying Statutory Statements of Financial Position. The total fair value of all reinvested collateral positions was$663 million and $687 million at December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, therewere no separate account securities lending agreements.

The Company participates in dollar repurchase agreements to sell and repurchase securities. The purchaser of thesecurities is permitted to sell or repledge those securities. The liability for repurchasing the assets is included in borrowedmoney in the accompanying Statutory Statements of Financial Position. At December 31, 2018 and 2017, the Companywas not a party to any dollar repurchase agreements in the general and separate accounts. At December 31, 2018, the carrying value and fair value of securities held under agreements to purchase and resellwas $342 million, which were classified as tri-party reverse repurchase agreements and included in cash, cashequivalents, and short-term investments in the accompanying Statutory Statements of Financial Position. The securitieshad a weighted average maturity of two days and a weighted average yield of 2.9%. At December 31, 2017, the carryingvalue and fair value of securities held under agreements to purchase and resell was $315 million, which were classifiedas tri-party reverse repurchase agreements and included in cash, cash equivalents, and short-term investments in theaccompanying Statutory Statements of Financial Position. The securities had a weighted average maturity of two daysand a weighted average yield of 1.4%.



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Collateral Received

At December 31, 2018 and 2017, assets received as collateral are reflected within the accompanying StatutoryStatements of Financial Position, along with a liability to return such collateral were as follows ($ in millions):

2018

Cash Collateral AssetsBook/AdjustedCarrying Value Fair Value

% of Total Assets(Admitted andNonadmitted)

% of Total AdmittedAssets

Securities lending $ 652 $ 652 0.4% 0.4%Derivatives 321 321 0.2 0.2Total $ 973 $ 973 0.6% 0.6%

2017

Cash Collateral AssetsBook/AdjustedCarrying Value Fair Value

% of Total Assets(Admitted andNonadmitted)

% of Total AdmittedAssets

Securities lending $ 678 $ 678 0.4% 0.4%Derivatives 329 329 0.2 0.2Total $ 1,007 $ 1,007 0.6% 0.6%

Cash received on securities lending transactions and repurchase agreements is then reinvested in short-term investmentsand bonds with various maturities.

2018 2017

Recognized Obligation to Return Collateral Asset Amount% of TotalLiabilities Amount

% of TotalLiabilities

Amounts payable under securities lending agreements $ 652 0.4% $ 678 0.5%Other liabilities (derivatives) 321 0.2 329 0.2Total $ 973 0.7% $ 1,007 0.7%



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Composition of Collateral Received

The following tables present the term and amounts of cash collateral received under general account securities lendingagreements at December 31, 2018 and 2017 (in millions):

2018Remaining Contractual Maturity of the Agreements

Open30 daysor less

31 to 60days

61 to 90days

Greaterthan 90

days TotalU.S. Treasury $ 10 $ — $ — $ — $ — $ 10U.S. government corporation & agencies 13 — — — — 13Foreign governments 2 — — — — 2U.S. corporate 507 — — — — 507Foreign corporate 119 — — — — 119Non-agency asset backed securities — — — — — —Total general account securities lendingtransactions $ 652 $ — $ — $ — $ — $ 652

2017Remaining Contractual Maturity of the Agreements

Open30 daysor less

31 to 60days

61 to 90days

Greaterthan 90

days TotalU.S. Treasury $ 20 $ — $ — $ — $ — $ 20U.S. government corporation & agencies — — — — — —Foreign governments 5 — — — — 5U.S. corporate 502 — — — — 502Foreign corporate 151 — — — — 151Total general account securities lendingtransactions $ 678 $ — $ — $ — $ — $ 678

At December 31, 2018 and 2017, there were no separate account securities cash collateral received under securitieslending agreements.



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Reinvestment of Collateral Received

The following tables present the term and aggregate fair value at December 31, 2018 and 2017 from the reinvestmentof all collateral received (in millions):

2018 2017Securities Lending Securities Lending

Period to Maturity Amortized Cost Fair Value Amortized Cost Fair ValueOpen $ — $ — $ — $ —30 days or less 414 414 410 41031 to 60 days 29 29 33 3361 to 90 days 5 5 5 591 to 120 days — — — —121 to 180 days 12 12 7 7181 to 365 days 47 47 17 171 to 2 years 82 81 86 862 to 3 years 63 63 91 91Greater than 3 years 12 12 37 38Total collateral reinvested $ 664 $ 663 $ 686 $ 687

To help manage the mismatch of maturity dates between the security lending transactions and the related reinvestmentof the collateral received, the Company invests in highly liquid assets.

Insurer Self-Certified Securities

The following represents securities for which the Company does not have all the information required for the NAICto provide an NAIC designation, but for which the Company is receiving timely payments of principal and interest.These securities are referred to as "5GI Securities" ($ in millions):

General Account 2018 2017

Investments

Number of5GI

SecuritiesCarrying

ValueEstimatedFair Value

Number of5GI

SecuritiesCarrying

ValueEstimatedFair Value

Bonds 14 $ 4 $ 4 15 $ 52 $ 55Loan-backed and structured securities 2 3 3 2 54 54Preferred stock - amortized cost 2 3 3 — —Preferred stock - fair value 2 6 6 — —Total 20 $ 16 $ 16 17 $ 106 $ 109

The Company did not have any 5GI securities in its separate accounts at December 31, 2018 and 2017.

Wash Sales

In the course of the Company’s investment management activities, securities may be sold and repurchased within 30days of the sale date to meet individual portfolio objectives and to achieve the ongoing rebalancing of exposure.



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The details by NAIC designation of 3 or below, or unrated, of securities sold during the year ended December 31,2018 and 2017 and reacquired within 30 days of the sale date are as follows ($ in millions):

2018

DescriptionNAIC

DesignationNumber of

TransactionsBook Value ofSecurities Sold

Cost of SecuritiesRepurchased

Realized Gains(Losses)

Bonds NAIC 3 4 $ 1 $ 1 $ —Bonds NAIC 4 9 2 2 —Bonds NAIC 5 1 — — —Bonds NAIC 6 — — — —Preferred stock NAIC 3 2 — — —Preferred stock NAIC 4 — — — —Preferred stock NAIC 5 — — — —Preferred stock NAIC 6 — — — —Common stock 740 170 170 3

756 $ 173 $ 173 $ 3

2017

DescriptionNAIC

DesignationNumber of

TransactionsBook Value ofSecurities Sold

Cost of SecuritiesRepurchased

Realized Gains(Losses)

Bonds NAIC 3 5 $ 7 $ 6 $ —Bonds NAIC 4 6 1 1 —Bonds NAIC 5 1 — — —Bonds NAIC 6 — — — —Preferred stock NAIC 3 2 1 1 —Preferred stock NAIC 4 — — — —Preferred stock NAIC 5 — — — —Preferred stock NAIC 6 — — — —Common stock 957 64 66 3

971 $ 73 $ 74 $ 3



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NOTE 7 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

The Company uses derivative instruments to manage interest rate and currency risk. These derivative instruments includeforeign currency forwards, interest rate options, interest rate futures and interest rate, inflation, and foreign currency swaps.The Company does not engage in derivative instrument transactions for speculative purposes.

The Company may enter into exchange traded futures and over-the-counter (“OTC”) derivative instruments. Exchangetraded derivatives are executed through regulated exchanges and require daily posting of initial and variation margin . TheCompany is exposed to credit risk resulting from default of the exchange.

OTC derivatives may either be cleared through a clearinghouse (“OTC-cleared”) or transacted between the Company anda counterparty under bilateral agreements (“OTC-bilateral”). Similar to exchange traded futures, OTC-cleared derivativesrequire initial and daily variation margin collateral postings. When transacting OTC-cleared derivatives, the Company isexposed to credit risk resulting from default of the clearinghouse and/or default of the Futures Commission Merchant (e.g.clearinghouse agent).

When transacting OTC-bilateral derivatives, the Company is exposed to the potential default of its OTC-bilateralcounterparty. The Company deals with a large number of highly rated OTC-bilateral counterparties, thus limiting its exposureto any single counterparty. The Company has controls in place to monitor credit exposures of OTC-bilateral counterpartiesby limiting transactions within specified dollar limits and continuously assessing the creditworthiness of its counterparties.The Company uses master netting agreements and adjusts transaction levels, when appropriate, to minimize risk. TheCompany’s policy is to not offset amounts for derivatives executed with the same counterparty under the same master nettingagreement with the associated collateral.

Credit risk is managed by entering into transactions with creditworthy counterparties and obtaining collateral whereappropriate. All of the net credit exposure for the Company from derivative contracts is with investment-grade counterparties.For OTC-cleared and exchange traded derivatives, the Company obtains collateral through variation margin which is adjusteddaily based on the parties’ net derivative position.

For OTC-bilateral derivatives, the Company obtains collateral in accordance with the terms of credit support annexes(“CSAs”) negotiated as part of the master agreements entered into with most OTC-bilateral counterparties.

The CSA defines the terms under which collateral is transferred between the parties in order to mitigate credit risk arisingfrom “in the money” derivative positions. The CSA requires that an OTC-bilateral counterparty post collateral to secure itsanticipated derivative obligation, taking into account netting arrangements. In addition, certain of the Company’s contractsrequire that if the Company’s (or its counterparty’s) credit rating were to fall below a specified rating assigned by a creditrating agency, the other party could request immediate payout on all transactions under the contracts or full collateralizationof the positions there under. Cash collateral is invested in short-term investments. The aggregate fair value of all OTC-bilateral derivative instruments with credit-risk related contingent features that are in a net liability position at December 31,2018 was $76 million for which the Company has posted collateral with a fair value of $74 million. If the credit contingentfeatures had been triggered at December 31, 2018, the Company estimates that it would not have had to post additionalcollateral for a one notch downgrade in the Company’s credit rating, but would have had to post $1 million for a downgradethat would trigger full collateralization.

The Company may be exposed to credit-related losses in the event that an OTC-bilateral counterparty fails to perform itsobligations under its contractual terms. In contractual arrangements with OTC-bilateral counterparties that do not includenetting provisions, in the event of default, credit exposure is limited to the positive fair value of derivatives at the reportingdate. In contractual arrangements with OTC-bilateral counterparties that include netting provisions, in the event of default,credit exposure is limited to the net fair value, if positive, of all derivatives at the reporting date. At December 31, 2018,the Company held collateral for derivatives of $262 million, including $49 million of securities. At December 31, 2017,the Company held collateral for derivatives of $216 million, including $19 million of securities. Fair value of derivativesin a net asset position, net of collateral, was $15 million and $14 million at December 31, 2018 and 2017, respectively.

Interest Rate Risk Management

The Company enters into various types of interest rate derivatives primarily to minimize exposure to fluctuations in interestrates on assets and liabilities held by the Company.

Interest rate swaps are used by the Company to hedge interest rate risk for individual and portfolios of assets. Interest rateswaps are agreements with other parties to exchange, at specified intervals, the difference between interest amounts calculatedby reference to an agreed upon notional value. Generally, no cash is exchanged at the onset of the contract and no principalpayments are made by either party. The Company does not act as an intermediary or broker in interest rate swaps.

Inflation swaps are used by the Company to hedge inflation risk of certain policyholder liabilities linked to the U.S. ConsumerPrice Index.

Interest rate (Treasury) futures are used by the Company to manage duration of the Company's fixed income portfolio.Interest rate futures are exchange traded contracts to buy or sell a bond at a specific price at a future date.


NOTE 7 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (continued)

34

Interest rate options are used by the Company to hedge the risk of increasing interest rates on policyholder liabilities. Underthese contracts, the Company will receive payments from counterparties should an agreed upon interest rate level be reachedand payments will continue to increase under the option contract until an agreed upon interest rate ceiling, if applicable.

Currency Risk Management

The primary purpose of the Company’s foreign currency hedging activities is to protect the value of foreign currencydenominated assets and liabilities, which the Company has acquired or incurred or anticipates acquiring or incurring, andnet investments in foreign subsidiaries from the risk of changes in foreign exchange rates.

Foreign currency swaps are agreements with other parties to exchange, at specified intervals, principal and interest in onecurrency for the same in another, at a fixed exchange rate, which is generally set at inception and calculated by referenceto an agreed upon notional value. Generally, only principal payments are exchanged at the onset and the end of the contract.

Foreign currency forwards involve the exchange of foreign currencies at a specified future date and at a specified price. Nocash is exchanged at the time the agreement is entered into.

Hedge Effectiveness

To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception detailing theparticular risk management objective and strategy for the hedge, including the item and risk that is being hedged, thederivative that is being used, and how effectiveness is assessed.

A derivative must be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flowsfor the risk being hedged. The Company formally assesses effectiveness of its hedging relationships both at the hedgeinception and on an ongoing basis in accordance with its risk management policy. The hedging relationship is consideredhighly effective if the changes in fair value or discounted cash flows of the hedging instrument are within 80-125% of theinverse changes in the fair value or discounted cash flows of the hedged item.

The Company discontinues hedge accounting prospectively if: (1) it is determined that the derivative is no longer highlyeffective in offsetting changes in the fair value or cash flows of a hedged item, (2) the derivative expires or is sold, terminated,or exercised, (3) it is probable that the forecasted transaction for which the hedge was entered into will not occur, or (4)management determines that the designation of the derivative as a hedge instrument is no longer appropriate.



35

The following tables present the notional amount, gross fair value and carrying value of derivative instruments that arequalifying and designated for hedge accounting, by type of hedge designation, and those that are not designated for hedgeaccounting at December 31, 2018 and 2017 (in millions):

2018

Primary RiskExposure

Notional Amount(1)

Fair Value(2) Carrying Value(3)

Derivative Type Asset Liability Asset Liability

Derivatives qualifying and designatedCash flow hedges:Foreign currency swaps Currency $ 85 $ 12 $ — $ 14 $ —Interest rate swaps Interest 39 9 — — —

Net investment hedges:Foreign currency forwards Currency 74 2 — 2 —Total derivatives qualifying and designated 198 23 — 16 —

Derivatives not designatedForeign currency forwards Currency $ 47 $ 2 $ — $ 2 $ —Foreign currency swaps Currency 7,227 336 182 336 182Futures Interest 21 — — — —Inflation swaps Interest 476 1 71 1 71Interest rate options Interest 61,734 12 — 12 —Interest rate swaps Interest 2,564 281 89 281 89Total derivatives not designated 72,069 632 342 632 342Total derivatives $ 72,267 $ 655 $ 342 $ 648 $ 342

(1) Notional amount of derivative instruments generally does not represent the amount exchanged between the parties engaged in thetransaction.

(2) For a discussion of valuation methods for derivative instruments refer to Note 9 – Fair Value Measurements.(3) The carrying value of all derivatives is reported within Derivatives in the accompanying Statutory Statements of Financial Position.



36

2017

Primary RiskExposure

Notional Amount(1)

Fair Value(2) Carrying Value(3)

Derivative Type Asset Liability Asset LiabilityDerivatives qualifying and designatedCash flow hedges:Foreign currency swaps Currency $ 85 $ 7 $ — $ 9 $ —Interest rate swaps Interest 39 11 — — —

Net investment hedges:Foreign currency forwards Currency 73 — 2 — 2Total derivatives qualifying and designated 197 18 2 9 2

Derivatives not designatedForeign currency forwards Currency 286 12 2 12 2Foreign currency swaps Currency 4,571 214 135 214 135Futures Interest 16 — — — —Inflation swaps Interest 476 6 66 6 66Interest rate options Interest 70,354 9 — 9 —Interest rate swaps Interest 1,857 337 118 337 118Total derivatives not designated 77,560 578 321 578 321Total derivatives $ 77,757 $ 596 $ 323 $ 587 $ 323

(1) Notional amount of derivative instruments generally does not represent the amount exchanged between the parties engaged in thetransaction.

(2) For a discussion of valuation methods for derivative instruments refer to Note 9 - Fair Value Measurements.(3) The carrying value of all derivatives is reported within Derivatives in the accompanying Statutory Statements of Financial Position.

Cash Flow Hedges

The Company’s cash flow hedges primarily include hedges of floating rate securities and foreign currency denominatedassets and liabilities. Derivative instruments used in cash flow hedges that meet criteria indicating that they are highlyeffective are valued and reported in a manner that is consistent with the hedged asset or liability.

The Company designates and accounts for the following qualified cash flow hedges: (1) interest rate swaps used to convertfloating rate investments to fixed rate investments; (2) foreign currency swaps used to hedge the foreign currency cash flowexposure of foreign currency denominated investments and liabilities; and (3) interest rate swaps to hedge the interest raterisk associated with forecasted transactions.

Net Investment Hedges

Foreign currency forwards, designated as net investment hedges, are used by the Company to hedge currency risk associatedwith its net investment in foreign operations. The changes in fair value of the derivative, to the extent it is highly effectiveas a hedge, are treated in a manner consistent with the hedged item.



37

The following table presents the effects of derivatives in cash flow and net investment hedging relationships for the yearsended December 31, 2018 and 2017 (in millions):

Surplus(1)Net Realized Capital

Gains (Losses)Net Investment

Income Other IncomeDerivative Type 2018 2017 2018 2017 2018 2017 2018 2017Foreign currency swaps $ 5 $ 44 $ — $ (50) $ 1 $ 1 $ — $ —Interest rate swaps — — — — 1 2 — —Foreign currency forwards 7 (4) — — — — — —Total $ 12 $ 40 $ — $ (50) $ 2 $ 3 $ — $ —

(1) The amount of gain or (loss) recognized in surplus is reported within change in net unrealized gains (losses) on investments in theaccompanying Statutory Statements of Changes in Surplus.

Derivatives Not Designated

The following table summarizes the surplus and net income impact on derivative instruments not designated for hedgeaccounting for the years ended December 31, 2018 and 2017 (in millions):

Surplus(1)Net Realized Capital

Gains (Losses)Net Investment

Income Other IncomeDerivative Type 2018 2017 2018 2017 2018 2017 2018 2017Foreign currency forwards $ (8) $ (12) $ 26 $ (11) $ — $ — $ — $ —Foreign currency swaps 77 64 (12) (228) 44 32 (42) (18)Futures — — — (29) — — — —Inflation swaps (11) (12) — — — — (3) (3)Interest rate options 32 (8) (10) — (38) (32) — —Interest rate swaps (26) (31) (1) — 12 18 (3) 1Total $ 64 $ 1 $ 3 $ (268) $ 18 $ 18 $ (48) $ (20)

(1) The amount of gain or (loss) recognized in surplus is reported as a change in net unrealized gains (losses) on investments in theaccompanying Statutory Statements of Changes in Surplus.



38

NOTE 8 – SEPARATE ACCOUNTS

Separate Accounts Activity

The Company utilizes separate accounts to record and account for assets and liabilities for particular lines of businessand/or transactions. The Company reported separate accounts assets and liabilities from employee benefit plans (groupannuity) and funding agreements product lines.

The Company has market value guaranteed separate accounts for which supplemental separate accounts assets are usedto fund the excess of the actuarial liabilities for future guaranteed payments over the market value of the assets.

In accordance with the domiciliary state procedures for approving items within separate accounts, the classification ofthe separate accounts listed above is subject to Section 4240 of the New York State Insurance Law. In addition, theseparate accounts listed above are supported through affirmative approval of the plans of operations by the New YorkState Department of Financial Services.

The assets legally and not legally insulated from the general account at December 31, 2018 and 2017 are attributed tothe following products or transactions (in millions):

2018 2017

Product or Transaction

LegallyInsulated

Assets

Separate AccountsAssets (Not Legally

Insulated)(2)

LegallyInsulated

Assets

Separate AccountsAssets (Not Legally

Insulated)(3)

Employee benefit plans (group annuity) $ 10,085 $ (32) $ 11,694 $ 82Funding agreements 337 2 1,498 8Supplemental account(1) — 61 — 72Total $ 10,422 $ 31 $ 13,192 $ 162

(1) The supplemental account is used to fund the excess of the actuarial liability for future guaranteed payments over the market valueof the guaranteed separate account assets. The Company evaluates separate accounts surplus quarterly and transfers funds to (orfrom) the supplemental separate account as necessary. These transfers are reported as net transfers to separate accounts in theaccompanying Statutory Statements of Operations.

(2) Separate accounts assets classified as not legally insulated assets support $23 million of payable for securities, $7 million ofremittances and items not allocated, $3 million of investment servicing fees payable, $3 million of other liabilities, partially offsetby $5 million of other transfers from the general account due or accrued (net).

(3) Separate accounts assets classified as not legally insulated assets support $148 million of payable for securities, $15 million ofremittances and items not allocated, $5 million of investment servicing fee payables, $4 million of other liabilities, partially offsetby $10 million of other transfers from the general account due or accrued (net).

Guaranteed Separate Accounts

The Company maintained assets in guaranteed separate accounts at December 31, 2018 and 2017 as follows (in millions):

2018 2017Market value separate accounts(1) $ 2,921 $ 5,074Book value separate accounts 4,843 4,498 Total guaranteed separate accounts assets $ 7,764 $ 9,572

(1) Includes assets maintained in the supplemental account of $61 million and $72 million at December 31, 2018 and 2017, respectively.

Certain market value separate accounts provide a minimum guaranteed interest rate. For these separate accounts, atcontract discontinuance, the contract holder is entitled to an immediate payout of market value, or an installment payoutof the guaranteed amount, or for certain contracts, a lump sum payout of the guaranteed amount at the end of a specificnumber of years, as set forth in the contract.

The book value separate account guarantees principal and interest during active status and at the contract discontinuance,the contract holder is entitled to a book value payout, if 12 months advance notice is provided. Alternatively, the contractholder may elect discontinuance with at least 10 days notice and receive an immediate lump sum payment subject toa termination adjustment factor (tied to an external index). The factor will not be greater than 1.

To compensate the general account for the risk taken for minimum guarantees in certain contracts, the separate accounthas paid risk charges as follows for the past five years (in millions):

Year Amount2018 $ 132017 $ 162016 $ 162015 $ 142014 $ 13


NOTE 8 – SEPARATE ACCOUNTS (continued)

39

For the years ended December 31, 2018, 2017, 2016, 2015 and 2014, the general account of the Company did not makeany payments toward separate accounts guarantees.

Non-Guaranteed Separate Accounts

The Company currently maintains non-guaranteed separate accounts with assets of $2,689 million and $3,781 millionat December 31, 2018 and 2017, respectively. Separate accounts funding non-guaranteed benefits provide no guaranteeof principal or interest, and payout is at fair value at contract discontinuance.

Information regarding the separate accounts of the Company at and for the years ended December 31, 2018 and 2017is as follows (in millions):

2018

Indexed

Non-IndexedGuarantee less than or

equal to 4%Non-Guaranteed

Separate Accounts TotalPremiums and considerations $ — $ 1,922 $ — $ 1,922Reserves at 12/31:For accounts with assets at: Fair value $ — $ 2,907 $ 2,687 $ 5,594 Amortized cost — 4,828 — 4,828Total reserves $ — $ 7,735 $ 2,687 $ 10,422By withdrawal characteristics: With fair value adjustment $ — $ 4,828 $ — $ 4,828 At fair value — 2,907 2,687 5,594Total reserves $ — $ 7,735 $ 2,687 $ 10,422

2017

Indexed

Non-IndexedGuarantee less than or

equal to 4%

Non-GuaranteedSeparateAccounts Total

Premiums and considerations $ — $ 1,137 $ — $ 1,137Reserves at 12/31:For accounts with assets at: Fair value $ — $ 4,947 $ 3,764 $ 8,711 Amortized cost — 4,481 — 4,481Total reserves $ — $ 9,428 $ 3,764 $ 13,192By withdrawal characteristics: With fair value adjustment $ — $ 4,481 $ — $ 4,481 At fair value — 4,947 3,764 8,711Total reserves $ — $ 9,428 $ 3,764 $ 13,192



40

The following is a reconciliation of net transfers from the general account to the separate accounts (in millions):

2018 2017Transfers as reported in the Separate Accounts Statement: Transfers to separate accounts $ 1,922 $ 1,137 Transfers from separate accounts (3,628) (2,126)

Net transfers from separate accounts (1,706) (989)Reconciling adjustments:

Reinsurance assumed — 2Payments upon settlement of indexed separate accounts — 6

Total reconciling adjustments — 8Net transfers as reported in the Company's Statutory Statements of Operations $ (1,706) $ (981)



41

NOTE 9 – FAIR VALUE MEASUREMENTS

The Company's financial assets and liabilities carried at fair value have been classified, for disclosure purposes, basedon a hierarchy defined by SSAP No. 100, "Fair Value Measurements". Fair value is defined as the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants at themeasurement date. This guidance establishes a framework for measuring fair value that includes a hierarchy used toclassify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used tomeasure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement fallsis determined based on the lowest level input that is significant to the fair value measurement.

The levels of the fair value hierarchy are based on the inputs to the valuation as follows:

Level 1 Fair value is based on unadjusted quoted prices for identical assets or liabilities in an activemarket. Active markets are defined as a market in which many transactions occur with sufficientfrequency and volume to provide pricing information on an ongoing basis.

Level 2 Observable inputs other than level 1 prices, such as quoted prices in active markets for similarassets or liabilities; quoted prices in markets that are not active for identical or similar assetsor liabilities, or other model driven inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets or liabilities. Valuations aregenerally obtained from third-party pricing services for identical or comparable assets orliabilities or through the use of valuation methodologies using observable market inputs.

Level 3 Instruments whose values are based on prices or valuation techniques that require inputs thatare both unobservable and significant to the overall fair value measurement. These inputs reflectmanagement’s own assumptions in pricing the asset or liability. Pricing may also be based uponbroker quotes that do not represent an offer to transact. Prices are determined using valuationmethodologies such as option pricing models, discounted cash flow models and other similartechniques. Non-binding broker quotes, which are utilized when pricing service information isnot available, are reviewed for reasonableness based on the Company’s understanding of themarket, and are generally considered Level 3. To the extent the internally developed valuationsuse significant unobservable inputs, they are classified as Level 3.

Determination of Fair Value

The Company has an established and well-documented process for determining fair value. Security pricing is appliedusing a hierarchy approach whereby publicly available prices are first sought from nationally recognized third-partypricing services. For most private placement securities, the Company applies a matrix-based pricing methodology,which uses spreads derived from third-party benchmark bond indices. For private placement securities that cannot bepriced through these processes, the Company uses internal models and calculations. All other securities are submittedto independent brokers for prices. The Company performs various analyses to ascertain that the prices represent fairvalue. Examples of procedures performed include, but are not limited to, back testing recent trades, monitoring tradingvolumes, and performing variance analysis of monthly price changes using different thresholds based on asset type.The Company also performs an annual review of all third-party pricing services. During this review, the Companyobtains an understanding of the process and sources used by the pricing service to ensure that they maximize the useof observable inputs, the pricing service’s frequency of updating prices, and the controls that the pricing service usesto ensure that their prices reflect market assumptions. The Company also selects a sample of securities and obtains amore detailed understanding from each pricing service regarding how they derived the price assigned to each security.Where inputs or prices do not reflect market participant assumptions, the Company will challenge these prices andapply different methodologies that will enhance the use of observable inputs and data. The Company may use non-binding broker quotes or internal valuations to support the fair value of securities that go through this formal pricechallenge process.

In addition, the Company has a pricing committee that provides oversight over the Company’s prices and fair valueprocess for securities. The committee is comprised of representatives from the Company’s Investment Managementgroup, Controller’s, Compliance and Security Operations. The committee meets quarterly and is responsible for thereview and approval of the Company’s valuation procedures. The committee is also responsible for the review of pricingexception reports as well as the review of significant inputs used in the valuation of assets that are valued internally.


NOTE 9 – FAIR VALUE MEASUREMENTS (continued)

42

The following tables present the carrying value and estimated fair value of the Company's financial instruments atDecember 31, 2018 and 2017 (in millions):

2018NAV as a

Fair Carrying Practical NotValue Value Level 1 Level 2 Level 3 Expedient Practicable

Assets:Bonds $ 108,132 $ 106,077 $ — $ 104,555 $ 3,577 $ — $ —Preferred stocks 80 65 — 39 41 — —Common stocks(1) 1,363 1,363 1,155 — 208 — —Mortgage loans 17,482 17,554 — — 17,482 — —Cash, cash equivalents andshort-term investments 2,835 2,835 341 2,494 — — —Derivatives 656 648 — 644 12 — —Derivatives collateral 87 87 — 87 — — —Other invested assets(1) 390 379 — 128 262 — —Investment income due andaccrued 1,494 1,494 — 1,494 — — —Separate accounts assets 10,412 10,453 1,250 8,060 14 1,088 —Total assets $ 142,931 $ 140,955 $ 2,746 $ 117,501 $21,596 $ 1,088 $ —Liabilities:Deposit fund contracts:

Funding agreements $ 19,038 $ 19,218 $ — $ — $19,038 $ — $ —Annuities certain 44 42 — — 44 — —Other deposit funds 534 534 — — 534 — —

Premiums paid in advance 98 98 — 98 — — —Derivatives 342 342 — 342 — — —Derivatives collateral 321 321 — 321 — — —Borrowed money 501 501 — 501 — — —Amounts payable under securitylending agreements 653 653 — 653 — — —Separate accounts liabilities -deposit type contracts 338 338 1 337 — — —Total liabilities $ 21,869 $ 22,047 $ 1 $ 2,252 $19,616 $ — $ —

(1) Excludes investments accounted for under the equity method.



43

2017

Fair ValueCarrying

Value Level 1 Level 2 Level 3Not

PracticableAssets:Bonds $ 104,773 $ 98,176 $ — $ 101,216 $ 3,557 $ —Preferred stocks 94 71 — 64 30 —Common stocks(1) 1,439 1,439 1,281 — 158 —Mortgage loans 15,972 15,676 — — 15,972 —Cash, cash equivalents andshort-term investments 2,420 2,420 569 1,851 — —Derivatives 596 587 — 587 9 —Derivatives collateral 95 95 — 95 — —Other invested assets(1) 475 450 — 172 303 —Investment income due andaccrued 1,285 1,285 — 1,285 — —Separate accounts assets 13,344 13,354 3,027 9,468 849 —Total assets $ 140,493 $ 133,553 $ 4,877 $ 114,738 $ 20,878 $ —Liabilities:Deposit fund contracts: Funding agreements $ 15,143 $ 15,197 $ — $ — $ 15,143 $ —

Annuities certain 56 51 — — 56 —Other deposit funds 492 492 — — 492 —

Premiums paid in advance 91 91 — 91 — —Derivatives 323 323 — 323 — —Derivatives collateral 329 329 — 329 — —Borrowed money 496 496 — 496 — —Amounts payable under securitylending agreements 679 679 — 679 — —Separate accounts liabilities -deposit type contracts 1,498 1,498 — 1,498 — —Total liabilities $ 19,107 $ 19,156 $ — $ 3,416 $ 15,691 $ —

(1) Excludes investments accounted for under the equity method.

Bonds

Securities priced using a pricing service are generally classified as Level 2. The pricing service generally uses anincome-based valuation approach by using a discounted cash-flow model or it may also use a market approach bylooking at recent trades of a specific security to determine fair value on public securities or a combination of the two.Typical inputs used by these pricing services include, but are not limited to: benchmark yields, reported trades, issuerspreads, bids, offers, benchmark securities, estimated cash flows and prepayment speeds.

Private placement securities are primarily priced using a market approach such as a matrix-based pricing methodology,which uses spreads derived from third-party benchmark bond indices. Specifically, the Barclays Investment GradeCorporate Index is used for investment-grade securities and the Citi High Yield Cash Index is used for below investment-grade securities. These indices are two widely recognized, reliable and well regarded benchmarks by participants inthe financial services industry, which represent the broader U.S. public bond markets. The spreads derived from eachmatrix are adjusted for liquidity. The liquidity premium is standardized and based on market transactions.



44

Certain private placement securities that cannot be priced using the matrix pricing described above, are priced by aninternally developed discounted cash flow model or are priced based on internal calculations. The model uses observableinputs with a discount rate based off spreads of comparable public bond issues, adjusted for liquidity, rating and maturity.The Company assigns a credit rating for private placement securities based upon internal analysis. The liquidity premiumis usually based on market transactions. These securities are classified as Level 2.

For some of the private placement securities priced through the model, the liquidity adjustments may not be based onmarket data, but rather, calculated internally. If the impact of the liquidity adjustment, which usually requires the mostjudgment, is not significant to the overall value of the security, the security is still classified as Level 2. If it is deemedto be significant, the security is classified as Level 3.

The valuation techniques for most Level 3 bonds are generally the same as those described in Level 2. However, if theinvestments are less liquid or are lightly traded, there is generally less observable market data, and therefore theseinvestments will be classified as Level 3. Circumstances where observable market data are not available may includeevents such as market illiquidity and credit events related to the security. In addition, certain securities are priced basedupon internal valuations using significant unobservable inputs. If a security could not be priced by a third-party vendoror through internal pricing models, broker quotes are received and reviewed by each investment analyst. These inputsmay not be observable. Therefore, Level 3 classification is determined to be appropriate.

Included in bonds are affiliated bonds from MCF and NYL Investments. The affiliated bond from MCF had a carryingvalue of $2,160 million and a fair value of $2,161 million at December 31, 2018 and a carrying value $2,107 millionand a fair value of $2,236 million at December 31, 2017. The fair value of this security is calculated internally andmay include inputs that may be not observable. Therefore, this security is classified as Level 3. The affiliated bondfrom NYL Investments had a carrying value of $600 million and a fair value of $602 million at December 31, 2018and a carrying value of $600 million and a fair value of $623 million at December 31, 2017. The fair value of thissecurity is calculated internally using observable inputs and is therefore classified at Level 2.

Preferred Stocks

Preferred stocks valued using prices from third-party pricing services generally use a discounted cash flow model ora market approach to arrive at the security’s fair value and are classified as Level 2. Preferred stocks classified as Level3 are valued based on internal valuations where significant inputs are deemed to be unobservable.

Common Stocks

These securities are mostly comprised of exchange traded U.S. and foreign common stock and mutual funds. The fairvalue of these securities is primarily based on unadjusted quoted prices in active markets that are readily and regularlyavailable and are classified as Level 1. Common stocks priced through an internal valuation where significant inputsare deemed to be unobservable, including securities issued by government organizations where fair value is fixed, areclassified as Level 3.

Mortgage Loans

The estimated fair value of mortgage loans is determined using an income approach, based upon the present value ofthe expected cash flows discounted at an interpolated treasury yield plus a spread. The spread is based on management’sjudgment and assumptions and it takes into account property type, LTV and remaining term of each loan. The spreadis a significant component of the pricing inputs. These investments are classified as Level 3.

Cash, Cash Equivalents, Short-term Investments and Investment Income Due and Accrued

Cash on hand and money market mutual funds are classified as Level 1. Cash overdrafts (i.e. outstanding checks) areclassified as Level 2. Due to the short-term maturities of cash equivalents, short term investments, and investmentincome due and accrued, carrying value approximates fair value and is classified as Level 2.



45

Derivatives

The fair value of derivative instruments is generally derived using valuation models that use an income approach, exceptfor derivatives that are exchange-traded, which are valued using quoted prices in an active market. Where valuationmodels are used, the selection of a particular model depends upon the contractual terms of, and specific risks inherentin the instrument, as well as the availability of pricing information in the market. The Company generally uses similarmodels to value similar instruments. Valuation model inputs include contractual terms, yield curves, foreign exchangerates, equity prices, credit curves, measures of volatility and other factors. Exchange-traded derivatives are valued usinga market approach as fair value is based on quoted prices in active market and are classified as Level 1. OTC derivativesthat trade in liquid markets, where model inputs are observable for substantially the full term, are classified as Level2. Derivatives that are valued based upon models with any significant unobservable market inputs or inputs from lessactively traded markets, or where the fair value is solely derived using broker quotations, are classified as Level 3.

Derivatives Collateral

The carrying value of these instruments approximates fair value since these assets and liabilities are generally short-term in nature.

Other Invested Assets

Other invested assets are principally comprised of LIHTC investments, affiliated loans and certain other investmentswith characteristics of debt. The fair value of the affiliated loans and the LIHTC investments are derived using anincome valuation approach, which is based on a discounted cash flow calculation using a discount rate that is determinedinternally. These investments are classified as Level 3 because the discount rate used is based on management’s judgmentand assumptions. Refer to Note 11 - Related Party Transactions, for details on intercompany investments and Note 6- Investments, for details on LIHTC investments. The fair value of investments with debt characteristics is derivedusing an income valuation approach, which is based on a discounted cash flow calculation that may or may not useobservable inputs. For affiliated loans due within one year, carrying value is deemed to approximate fair value due tothe short-term nature of these investments. These investments are classified as Level 2.

Separate Accounts Assets

Separate accounts assets reported as Level 1 in the fair value hierarchy are comprised of cash and common stocks.Common stocks are generally traded on an exchange. Separate accounts assets reported as Level 2 relate to investmentsin U.S. government and treasury securities, corporate bonds and mortgage-backed securities. These separate accountsassets are valued and assigned within the fair value hierarchy, consistent with the methodologies described herein forsimilar financial instruments held within the general account of the Company.

The separate accounts also invest in limited partnerships and hedge fund investments. These investments are valuedbased on the latest NAV received.



46

The following tables provide additional information for investments that are measured at fair value using NAV as apractical expedient, as allowed under authoritative guidance, for investments that meet specified criteria (in millions):

2018

Category ofInvestment

InvestmentStrategy

Fair ValueDeterminedUsing NAV

UnfundedCommitments

RedemptionFrequency

RedemptionNotice Period

Hedge fund

Long/short equity,futures, options,foreign exchange

arbitrage $ 349 $ —

Annual, Semi-Annual, Quarterly,

Monthly, Daily

0 - 90 days(Assets subject tolock-up periods)

Hedge fundDistressed securities,

multi-strategy 14 —Semi-Annual,

Quarterly

60 - 90 days(Assets subject tolock-up periods)

Privateequity

Leverage buyout,mezzanine financing,distressed securities 702 550 N/A N/A

Collectiveinvestment

trustInvestment grade

fixed income 23 — On request N/A$ 1,088 $ 550

2017

Category ofInvestment

InvestmentStrategy


UnfundedCommitments

RedemptionFrequency


Hedge fund Long/short equity $ 342 $ —

Annual, Semi-Annual, Quarterly,

Monthly

30- 90 days(Assets subject tolock-up periods)

Hedge fund

Merger arbitrage,distressed securities,

multi-strategy 49 —Annual, Semi-

Annual, Quarterly

60-90 days(Assets subject tolock-up periods)

Privateequity

Leverage buyout,mezzanine

financing, anddistressed securities 549 462 N/A N/A

$ 940 (1) $ 462

(1) The total fair value determined using NAV at December 31, 2017 included Level 2 and Level 3 investments of $103 million and$847 million, respectively.

Deposit Fund Contracts

For funding agreements backing medium term notes, fair values are based on available market prices for the notes. Forother funding agreements and annuities certain liabilities, fair values are estimated using discounted cash flowcalculations based on interest rates currently being offered for similar contracts with maturities consistent with thoseremaining for the contracts being valued. For all other deposit funds, the fair value is estimated to be equal to the accountvalue since they can be withdrawn at anytime and without prior notice.

Premiums Paid in Advance

For premiums paid in advance, the carrying value of the liability approximates fair value.



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Borrowed Money

Borrowed money consists of intercompany borrowings and other financing arrangements. Due to the short-term natureof the transactions, the carrying value approximates fair value. The Company had no repurchase agreements atDecember 31, 2018 and 2017.

Amounts Payable Under Securities Lending Agreements

Amounts due under securities lending consists of cash collateral received under securities lending agreements. Due tothe short-term nature of the transactions, the carrying value approximates fair value.

Separate Accounts Liabilities – Deposit Type Contracts

For deposit type contracts, which are funding agreements, the proceeds from which are invested primarily in fixedincome securities, the carrying value of the liability approximates the fair value of the invested assets. These assets arevalued using the same methods described for separate accounts assets and are classified as Level 2.

The following tables represent the balances of assets and liabilities measured and carried at fair value or net asset value("NAV") at December 31, 2018 and 2017 (in millions):

2018Quoted Prices inActive Markets

for IdenticalAssets (Level 1)

SignificantObservable

Inputs(Level 2)

SignificantUnobservable

Inputs(Level 3)

NAV as aPractical

Expedient TotalAssets at fair valueBonds U.S. corporate $ — $ 17 $ — $ — $ 17 Non-agency CMBS — 4 — — 4 Non-agency ABS — 3 4 — 7 Total bonds — 24 4 — 28Preferred stocks — 6 10 — 16Common stocks 1,155 — 208 — 1,363Derivatives — 620 12 — 632Separate accounts assets 1,250 3,269 3 1,088 5,610Total assets at fair value $ 2,405 $ 3,919 $ 237 $ 1,088 $ 7,649Liabilities at fair valueDerivatives $ — $ 342 $ — $ — $ 342Separate accounts liabilities -derivatives(1) 1 — — — 1Total liabilities at fair value $ 1 $ 342 $ — $ — $ 343

(1) The total gains (losses) included in surplus for separate accounts assets are offset by an equal amount for separate accountsliabilities, which results in a net zero impact on surplus for the Company.



48

2017Quoted Prices in

Active Markets forIdentical Assets

(Level 1)

SignificantObservable

Inputs(Level 2)

SignificantUnobservable

Inputs(Level 3) Total

Assets at fair valueBonds U.S. corporate $ — $ 19 $ — $ 19 Non-agency CMBS — 4 — 4 Non-agency ABS — 8 2 10 Total bonds — 31 2 33Preferred stocks — — 10 10Common stocks 1,281 — 158 1,439Derivatives — 569 9 578Separate accounts assets 3,013 5,001 839 8,853

Total assets at fair value $ 4,294 $ 5,601 $ 1,018 $ 10,913Liabilities at fair valueDerivatives $ — $ 321 $ — $ 321Total liabilities at fair value $ — $ 321 $ — $ 321

The tables below present a reconciliation of Level 3 assets and liabilities for the years ended December 31, 2018 and2017 (in millions):

2018

Balanceat 1/1

Transfersinto

Level 3

Transfersout of

Level 3

Total Gains(Losses)

Included inNet Income

Total Gains(Losses)

Included inSurplus Purchases Issuances Sales Settlements

Balanceat 12/31

Bonds:Non-agencyABS $ 2 $ 3 $ (2) $ — $ (1) $ 2 $ — $ — $ — $ 4

Total bonds 2 3 (2) — (1) 2 — — — 4Common stocks 158 5 — 1 — 158 — (114) — 208Preferred stocks 10 — (2) — — 2 — — — 10Derivatives 9 — — (49) 32 35 — (15) — 12Separate accountsassets(1) 839 3 — 1 (1) — — (2) — 840Total $ 1,018 $ 11 $ (4) $ (47) $ 30 $ 197 $ — $ (131) $ — $ 1,074




49

2017

Balanceat 1/1

Transfersinto

Level 3

Transfersout of

Level 3

Total Gains(Losses)

Included inNet Income

Total Gains(Losses)

Included inSurplus Purchases Issuances Sales Settlements

Balanceat 12/31

Bonds:Non-agencyABS $ 18 $ — $ (12) $ (2) $ 1 $ — $ — $ — $ (3) $ 2

Total bonds 18 — (12) (2) 1 — — — (3) 2

Common stocks 148 — (1) 3 — 52 — (44) — 158Preferred stocks 2 2 (1) — (1) 8 — — — 10Derivatives 49 — — (32) (8) — — — — 9Separate accountsassets(1) 860 — (111) 79 23 213 — (223) (2) 839Total $ 1,077 $ 2 $ (125) $ 48 $ 15 $ 273 $ — $ (267) $ (5) $ 1,018


Transfers Between Levels

Transfers between levels may occur due to changes in valuation sources, or changes in the availability of marketobservable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume orbid-ask spreads, or as a result of a security measured at amortized cost at the beginning of the period, but measured atestimated fair value at the end of the period, or vice versa due to a ratings downgrade or upgrade.

Transfers between Levels 1 and 2

During the years ended December 31, 2018 and 2017, there were no transfers between Levels 1 and 2.

Transfers into and out of Level 3

The Company’s basis for transferring assets and liabilities into and out of Level 3 is based on changes in the observabilityof data, a change in the security’s measurement.

Transfers into Level 3 totaled $11 million for the year ended December 31, 2018, which primarily relates to $5 millionof common stocks and $3 million of bonds. $3 million of the common stocks had a level change from 1 to 3 while theremainder was transferred into level 3 due to corporate actions. All of the bonds was related to a non-agency asset-backed security that was measured at amortized cost at the beginning of the period and measured at fair market valueat the end of the period. Transfers out of Level 3 totaled $4 million for the year ended December 31, 2018, whichprimarily relates to $2 million of a non-agency asset-backed security that has a level change from 3 to 2; and preferredstocks of $2 million, which was measured at fair market value at the beginning of the period and of which $1 millionwas impaired down to zero at the end of the period and the remainder was measured at amortized cost at the end of theperiod.

Transfers into Level 3 were $2 million for the year ended December 31, 2017, which primarily relates to non-redeemablepreferred stock that was measured at amortized cost at the beginning of the period and measured at fair market valueat the end of the period. Transfers out of Level 3 totaled $125 million for the year ended December 31, 2017, whichprimarily includes $12 million of non-agency asset backed securities, of which $5 million was measured at fair marketvalue at the beginning of the period and measured at amortized cost at the end of the period, and $7 million that movedfrom Level 3 to Level 2.

The Company did not have any liabilities categorized as Level 3 for the years ended December 31, 2018 and 2017.



50

The table below presents quantitative information on significant internally priced Level 3 assets and liabilities atDecember 31, 2018 and 2017 ($ in millions):

2018

Fair ValueValuation

Techniques Unobservable

InputRange Weighted

AverageAssets:Common stocks andpreferred stocks $ 12

Marketcomparable Revenue multiple 5.5x - 9.0x N/A

2017

Fair ValueValuation

Techniques Unobservable

InputRange Weighted

AverageAssets:

Non-agency ABS $ 2Discounted cashflow Discount rate 9.9% 9.9%

Common stocks andpreferred stocks $ 12

Marketcomparable Revenue multiple 7.4x - 13.3x N/A

The following is a description of the sensitivity to changes in unobservable inputs of the estimated fair value of theCompany's Level 3 assets included above, for which we have access to the valuation inputs, as well as the sensitivityto changes in unobservable inputs of the Level 3 assets that are valued based on external pricing information.

Asset Backed Securities

The asset backed security included in the table above relates to a private deal. For this security, a discounted cash flowcalculation is used, the discount rate is calculated internally based on unobservable data and assumptions. A significantincrease in the discount rate used to perform the discounted cash flow calculation for these securities, would significantlydecrease the fair value of these securities. The opposite effect would occur if there were a significant decrease in thediscount rate used.

Common Stocks

The Company's Level 3 common stock investments mostly relate to the Company’s holdings in the FHLB of NY’sstock as described in Note 12 - Insurance Liabilities. As prescribed in the FHLB of NY’s capital plan, the par valueof the capital stock is $100 and all capital stock is issued, redeemed, repurchased or transferred at par value. Since thereis not an observable market for the FHLB of NY stock, these securities are held at cost and have been classified asLevel 3. The cost basis of the FHLB of NY stock was $202 million and $156 million at December 31, 2018 and 2017,respectively. For the other common stock investments included in Level 3, the valuation is performed using revenueand price to book multiples. An increase in the value of these inputs would result in an increase in fair value with thereverse being true for decreases in the value of these inputs.



51

NOTE 10 – INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES


52

The components of net investment income for the years ended December 31, 2018 and 2017 were as follows (inmillions):

2018 2017Bonds $ 4,461 $ 4,223Common and preferred stocks 641 310Mortgage loans 711 666Policy loans 586 571Limited partnerships and other invested assets 1,026 1,022Short-term investments 29 20Derivatives 20 20Real estate 239 237Other investments 14 9 Gross investment income 7,727 7,078

Investment expenses (493) (475) Net investment income 7,234 6,603Amortization of IMR 104 105 Net investment income, including IMR $ 7,338 $ 6,708

Due and accrued investment income is excluded from surplus when amounts are over 90 days past due or collectionis uncertain.

Bond Prepayments

The following table shows the Company's securities redeemed or otherwise disposed of as a result of a callable feature(including make whole call provisions) and the amount of investment income generated as a result of a prepaymentpenalty and/or acceleration fee, which is included in Bonds in the table above ($ in millions):

2018 2017General Account Separate Account General Account Separate Account

Number of cusips 183 17 267 28Investment income $ 48 $ 1 $ 72 $ 3

For the years ended December 31, 2018 and 2017, net investment gains (losses) were as follows (in millions):

2018 2017Bonds $ (35) $ 61Common and preferred stocks 52 79Limited partnerships and other investments (165) (127)Real estate 13 4Derivatives 3 (318)Other - primarily foreign exchange — 270Net realized capital gains (losses) before tax and transfers to IMR $ (132) $ (31)Less:

Capital gains tax expense (benefit) (35) 20Net realized capital gains (losses) after-tax transferred to IMR (22) 40

Net realized capital gains (losses) after-tax and transfers to IMR $ (75) $ (91)

Proceeds from investments in bonds sold were $4,759 million and $3,234 million for the years ended December 31,2018 and 2017, respectively. Gross gains of $133 million and $134 million in 2018 and 2017, respectively, and grosslosses of $128 million and $39 million in 2018 and 2017, respectively, were realized on these sales. The Companycomputes gains and losses on sales under the specific identification method.

The following table provides a summary of OTTI losses included as realized capital losses for the years endedDecember 31, 2018 and 2017 (in millions):

2018 2017Limited partnerships and other investments $ 185 $ 189Bonds 45 52Common and preferred stocks 6 5 Total $ 236 $ 246

Refer to Note 20 - Loan-Backed and Structured Security Impairments for a list with each loan-backed and structuredsecurity at a CUSIP level where the present value of cash flows expected to be collected is less than the amortized costbasis during the current year.


NOTE 10 – INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES (continued)

53

The following tables present the Company’s gross unrealized losses and fair values for bonds and equities aggregatedby investment category and length of time that individual securities have been in a continuous unrealized loss position,at December 31, 2018 and 2017 (in millions):

2018Less than 12 Months 12 Months or Greater Total

EstimatedFair Value

UnrealizedLosses

EstimatedFair Value

UnrealizedLosses

EstimatedFair Value

UnrealizedLosses(1)

BondsU.S. governments $ 308 $ 5 $ 919 $ 55 $ 1,227 $ 60All other governments 50 1 83 2 133 3U.S. Special Revenue and SpecialAssessment 3,442 85 3,963 204 7,405 289Industrial and miscellaneousunaffiliated 32,921 1,006 12,673 702 45,594 1,708Hybrid securities 1 — — — 1 —Total bonds $ 36,722 $ 1,097 $ 17,638 $ 963 $ 54,360 $ 2,060Equity securities (unaffiliated)Common stocks $ 584 $ 53 $ 13 $ 1 $ 597 $ 54Preferred stocks 16 1 8 — 24 1Total equity securities 600 54 21 1 621 55Total $ 37,322 $ 1,151 $ 17,659 $ 964 $ 54,981 $ 2,115

(1) Includes unrealized losses of $1 million related to NAIC 6 bonds included in the statutory carrying amount.

2017Less than 12 Months 12 Months or Greater Total

EstimatedFair Value

UnrealizedLosses

EstimatedFair Value

UnrealizedLosses

EstimatedFair Value

UnrealizedLosses(1)

BondsU.S. governments $ 426 $ 5 $ 851 $ 54 $ 1,277 $ 59

All other governments 75 1 38 1 113 2U.S. Special Revenue and SpecialAssessment 1,871 18 2,801 115 4,672 133Industrial and miscellaneousunaffiliated 9,175 92 6,399 200 15,574 292Total bonds $ 11,547 $ 116 $ 10,089 $ 370 $ 21,636 $ 486Equity securities (unaffiliated)Common stocks $ 113 $ 6 $ 2 $ — $ 115 $ 6Preferred stocks 19 2 — — 19 2Total equity securities 132 8 2 — 134 8Total $ 11,679 $ 124 $ 10,091 $ 370 $ 21,770 $ 494

(1) Includes unrealized losses of $4 million related to NAIC 6 rated bonds included in the statutory carrying amount.



54

At December 31, 2018, the gross unrealized loss on bonds and equity securities was comprised of approximately 6,764and 485 different securities, respectively, which are included in the table above. Of the total amount of bond unrealizedlosses, $1,737 million, or 84%, is related to investment grade securities and $324 million, or 16%, is related to belowinvestment grade securities. At December 31, 2017, the gross unrealized loss on bonds and equity securities wascomprised of approximately 3,059 and 301 different securities, respectively, which are included in the table above. Ofthe total amount of bond unrealized losses, $424 million, or 87%, is related to investment grade securities and $63million, or 13%, is related to below investment grade securities. Investment grade is defined as a security having acredit rating from the NAIC of 1 or 2; a rating of Aaa, Aa, A or Baa from Moody’s or a rating of AAA, AA, A or BBBfrom Standard & Poor’s (‘‘S&P’’); or a comparable internal rating if an externally provided rating is not available.

The amount of gross unrealized losses for bonds where fair value had declined by 20% or more of the amortized cost,totaled $55 million. The period of time that each of these securities has continuously been below amortized cost by20% or more consists of $41 million for six months or less, less than 1 million for greater than six months through 12months, and $14 million for greater than 12 months. In accordance with the Company's impairment policy, the Companyperformed quantitative and qualitative analysis to determine if the decline was temporary. For those securities wherethe decline was considered temporary, the Company did not recognize an impairment when it had the ability and intentto hold until recovery.

The change in unrealized capital gains (losses) for the years ended December 31, 2018 and 2017 were as follows (inmillions):

2018 2017Change in unrealized capital gains (losses) on investments:

Bonds $ 3 $ 3Preferred stocks 1 (1)Common stocks (unaffiliated) (156) 84Common stocks (affiliated) (408) 469Derivatives 69 44Limited partnerships and other invested assets 4 190

Total change in unrealized capital gains on investments (487) 789

Change in unrealized foreign exchange capital gains (losses) on investments:Bonds (168) 241Common stocks (unaffiliated) (2) 17Cash, cash equivalents and short-term investments (2) 1Derivatives 7 (3)Limited partnerships and other invested assets (21) 52Aggregate write-ins 136 (361)

Total change in unrealized foreign exchange capital gains (losses) on investments (50) (53)Capital gains tax expense (benefit) (13) 107Total change in unrealized capital gains (losses), net of tax $ (550) $ 843



55

NOTE 11 – RELATED PARTY TRANSACTIONS


56

For the years ended December 31, 2018 and 2017, the Company made the following capital contributions to its insuranceand holding company subsidiaries (in millions):

2018 2017NYLE $ 40 $ 26NYLIFE LLC 3 10

Total $ 43 $ 36

During 2018 and 2017, the Company recorded the following dividend distributions from its insurance and holdingcompany subsidiaries (in millions):

2018 2017NYLIAC $ 600 $ 275NYL Investments 129 10MCF 93 77NYL Investors 90 70

Total $ 912 $ 432

During 2018, the Company received a return of capital from NYLE of $448 million. During 2017, the Company didnot receive a return of capital from any of its insurance and holding company subsidiaries.

On December 31, 2015 and as amended on January 1, 2017, the Company and NYLIAC entered into a note fundingagreement with MCF (the “MCF Note Agreement”) and acquired a variable funding note issued by MCF thereunder(the “2015 Note”). The MCF Note Agreement was further amended on July 1, 2018 and the 2015 Note was cancelledand reissued at July 1, 2018 (the “2018 Note”). The 2015 and 2018 Notes, which are reported as Bonds in theaccompanying Statutory Statements of Financial Position, had outstanding balances for the Company of $2,160 millionand $2,107 million at December 31, 2018 and 2017, respectively. During 2018 and 2017, the Company recorded interestincome from MCF under the MCF Note Agreement of $106 million and $88 million, respectively, which was includedin Net investment income in the accompanying Statutory Statements of Operations. Pursuant to the MCF NoteAgreement and variable funding note issued thereunder, the Company and NYLIAC may provide an aggregate of upto $5,200 million in funding to MCF for lending and equity investment commitments, as well as for business expenses.All outstanding advances made to MCF under the MCF Note Agreement, together with unpaid interest thereon, willbe due in full on December 31, 2025.

On April 13, 2016, the Company and New York Life Capital Corporation (“NYLCC”), a wholly owned subsidiary ofNYLIFE LLC, entered into a five-year $1,250 million revolving credit facility (the "Credit Facility") with a syndicateof lenders. The Credit Facility expires on April 13, 2021. The Company and NYLCC are borrowers under the CreditFacility. The Credit Facility replaced a three-year $500 million revolving credit facility, effective June 28, 2013 ("FacilityA") and a five-year $500 million revolving credit facility, effective June 28, 2013 ("Facility B") that the Companyentered into with a syndicate of lenders, both of which were terminated on April 13, 2016. NYLCC’s commercial papercapacity is $2,500 million. During 2018 and 2017, these credit facilities were not used, no interest was paid and nooutstanding balance was due.

On October 1, 2014, the Company and NYL Investments entered into a term loan agreement whereby the Companyagreed to loan NYL Investments a principal amount of $400 million. During 2015, the loan agreement was increasedto $600 million. During 2016, the loan was converted to a senior note, which is reported as a bond in the accompanyingStatutory Statements of Financial Position, and was solely a change in legal form of the instrument with no changes tothe economic terms of the investment. During both 2018 and 2017, the Company recorded interest income from NYLInvestments totaling $26 million. At both December 31, 2018 and 2017, the senior note had a carrying value of $600million.

On August 19, 2015, the Company entered into a loan agreement with Cordius CIG, a sub-fund of Cordius, which isa Société d'Investissement à Captial Variable (a "SICAV"). A SICAV is an open-ended collective investment productcommon in Western Europe and is similar to an open-ended mutual fund in the U.S. Cordius is an indirect affiliate ofthe Company. Under this agreement, the Company issued a loan to Cordius CIG for €100 million. Cordius CIG paiddown €50 million on the loan during 2016. The loan is a variable rate instrument due on September 30, 2019 with acarrying value, translated in U.S. dollars, of $57 million and $60 million at December 31, 2018 and 2017, respectively.The loan is included with other invested assets in the accompanying Statutory Statements of Financial Position. Duringboth 2018 and 2017, the Company recorded interest income on the loan totaling less than $1 million, which was includedin net investment income.

The Company has entered into three separate loan agreements with NYL Investors. The three loans have an outstandingbalance at December 31, 2018 of $18 million, $13 million and $28 million. The loans are variable rate loans withmaturity dates of April 2031, May 2030 and April 2027. The loans are included in other invested assets in theaccompanying Statutory Statements of Financial Position. During both 2018 and 2017, the Company recorded interestincome on the loans totaling $3 million, which was included in net investment income.

The Company is party to an investment advisory agreement with NYL Investors, as amended from time to time, toreceive investment advisory and administrative services from NYL Investors. At December 31, 2018 and 2017, thetotal cost to the Company for these services amounted to $174 million and $160 million, respectively. The terms of theagreements require that these amounts be settled in cash within 90 days.

Under various written agreements, the Company has agreed to provide certain of its direct and indirect subsidiarieswith certain services and facilities including but not limited to the following: accounting, tax and auditing services,legal services, actuarial services, electronic data processing operations, and communications operations. The Companyis reimbursed for the identified costs associated with these services and facilities. Such costs amounting to $1,150million and $1,262 million for the years ended December 31, 2018 and 2017, respectively, were incurred by the Companyand billed to its subsidiaries. The terms of the agreements require that these amounts be settled in cash within 90 days.

At December 31, 2018 and 2017, the Company reported a net amount of $38 million and $286 million, respectively,due from subsidiaries and affiliates. The terms of the underlying agreements generally require that these amounts besettled in cash within 90 days.

In connection with a $150 million land acquisition of a fee simple estate in land underlying an office building andrelated improvements and encumbered by a ground lease located at 1372 Broadway, New York, New York by theCompany (73.8% interest) and NYLIAC (26.2% interest), the Company and NYLIAC entered into a Tenancy InCommon Agreement dated June 11, 2012 in which the agreement sets forth the terms that govern, in part, each entity’sinterest in the property.

Real Estate portfolio acquired through foreclosure is called REO Portfolio. NYLIAC's interests in commercial mortgageloans are held in the form of participations in mortgage loans originated or acquired by the Company. In the case ofthe REO Portfolio, ownership of REO Property is called REO Ownership Interest. Under the participation agreementfor the mortgage loans, it is agreed between the Company and NYLIAC that NYLIAC’s proportionate interest (asevidenced by a participation certificate) in the underlying mortgage loan, including without limitation, the principalbalance thereof, all interest which accrues thereon, and all proceeds generated there from, will be pari passu with theCompany’s and pro rata based upon the respective amounts funded by the Company and NYLIAC in connection withthe applicable mortgage loan origination or acquisition. Consistent with the participation arrangement, all mortgageloan documents name the Company (and not both NYLIAC and the Company) as the lender but are held for the benefitof both the Company and NYLIAC pursuant to the applicable participation agreement. The Company retains generaldecision making authority with respect to each mortgage loan, although certain decisions require NYLIAC’s approval.


NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

57

The Company has purchased various corporate owned life insurance policies from NYLIAC for the purpose ofinformally funding certain benefits for the Company’s employees and agents. These policies were issued to the Companyon the same terms as policies sold to unrelated customers. For the years ended December 31, 2018 and 2017, the cashsurrender value of these policies amounted to $4,022 million and $3,974 million, respectively, and is included withother assets in the accompanying Statutory Statements of Financial Position. Of the $4,022 million cash surrender valueat December 31, 2018, $3,130 million is invested in NYLIAC’s general account and $892 million is invested inNYLIAC’s separate accounts products. The investments in NYLIAC's separate accounts are allocated into the followingcategories based on primary underlying investment characteristics: 37% bonds, 35% stocks, 27% cash and 1% realestate. During 2018 and 2017, the Company recorded income related to these policies of $90 million and $238 million,respectively, and is included in other income in the accompanying Statutory Statements of Operations.

The Company has issued $8,673 million and $8,229 million at December 31, 2018 and 2017, respectively, of singlepremium annuities to NYLIAC in connection with NYLIAC’s obligation under structured settlement agreements.NYLIAC has directed the Company to make the payments under the annuity contracts directly to beneficiaries underthe structured settlement agreements.

The Company is the assumed obligor for certain structured settlement agreements with unaffiliated insurance companies,beneficiaries and other non-affiliated entities. To satisfy its obligations under these agreements, the Company ownssingle premium annuities issued by NYLIAC. The obligations are based upon the actuarially determined present valueof expected future payments. Interest rates used in establishing such obligations range from 5.50% to 8.75%. TheCompany has directed NYLIAC to make the payments under the annuity contracts directly to the beneficiaries underthe structured settlement agreements. At December 31, 2018 and 2017, the carrying value of the annuity contracts andthe corresponding obligations amounted to $145 million and $149 million, respectively.

In the ordinary course of business, the Company enters into reinsurance agreements with its subsidiaries and affiliates.Material reinsurance agreements have been disclosed in Note 13 – Reinsurance.

In the ordinary course of business, the Company enters into numerous arrangements with its affiliates. In addition, inthe ordinary course of business, the Company may enter into guarantees and/or keepwells between itself and its affiliates.Material guarantee agreements have been disclosed in Note 15 - Commitments and Contingencies.


NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

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NOTE 12 – INSURANCE LIABILITIES

Liabilities for policy reserves, deposit funds and policy claims at December 31, 2018 and 2017 were as follows (inmillions):

2018 2017Life insurance reserves $ 78,886 $ 79,121Annuity reserves and supplementary contracts with life contingencies 26,810 24,482Accident and health reserves (including long-term care) 4,272 3,949Total policy reserves 109,968 107,552Deposit funds 21,909 17,922Policy claims 747 786Total liabilities for policy reserves, deposit funds and policy claims $ 132,624 $ 126,260

Life Insurance Reserves

Reserves for life insurance policies are maintained principally using the 1941, 1958, 1980, 2001, and 2017Commissioners' Standard Ordinary (“CSO”) Mortality Tables and the 1958 and 1980 Commissioners’ Extended Term(“CET”) Mortality Tables under the net level premium method, the Commissioners' Reserve Valuation Method(“CRVM”), or Modified Preliminary Term (“MPT”) with valuation interest rates ranging from 2.0% to 6.0%.

The tabular interest for life insurance has been determined by formula as described in the NAIC instructions.

The tabular less actual reserve released has been determined by formula as described in the NAIC instructions.

The tabular cost for individual life insurance for seven year term, for certain survivorship whole life policies, and forancillary coverage has been determined by formula as described in the NAIC instructions. For all other coverages,including the bulk of individual life, the tabular cost has been determined from the basic data for the calculation ofpolicy reserves.

The Company has established policy reserves (excluding the effects of reinsurance) on contracts issued January 1, 2001and later that exceed the minimum amounts determined under Appendix A-820, “Minimum Life and Annuity ReserveStandards” of NAIC SAP by approximately $418 million and $433 million in 2018 and 2017, respectively.

The Company waives deductions of deferred fractional premiums upon death of the insured and returns a portion ofthe final premium beyond the date of death. No surrender values are promised in excess of the total reserves. Certainsubstandard policies are valued on tables that are multiples of the standard table. Other substandard policies werevalued as equivalent to standard lives on the basis of insurance age. Additional reserves were held on account ofanticipated extra mortality for policies subject to extra premiums.

At December 31, 2018 and 2017, the Company had $29,210 million and $36,153 million, respectively, of insurancein-force for which the gross premiums were less than the net premiums according to the standard of valuation set bythe state of New York.

The Company has elected to establish reserves pursuant to NAIC Valuation Manual Appendix A and Valuation ManualAppendix C for contracts issued in 2018 and 2017, as allowed during the first three years following the operating dateof the Valuation Manual.

In 2018, the Company recorded a $33 million increase in reserves for blended whole life insurance sold under theGroup Membership business operation to reflect an updated valuation methodology. This change in valuation basiswas reported as a direct reduction in surplus in the accompanying Statutory Statements of Changes Surplus.

Annuity Reserves and Supplementary Contracts Involving Life Contingencies

Tabular interest for group annuity contracts has been determined from the basic data for the calculation of policy reservesas described in the NAIC instructions.

Reserves for supplementary contracts involving life contingencies and annuities involving current mortality risks arebased principally on 1951 Group Annuity Mortality (“GAM”), 1960 Mod. a-49, 1971 Individual Annuity Mortality(“IAM”), 1983 Table A, A2000, 2012 Individual Annuity Reserving table ("IAR") and the Commissioners’ AnnuityReserve Valuation Method (“CARVM”) with assumed interest rates ranging from 2.0% to 9.5%.

In 2018, the Company recorded a $6 million increase in reserves for single premium buy-out deferred annuity contractsto reflect an updated valuation methodology. This change in valuation basis was reported as a direct reduction in surplusin the accompanying Statutory Statements of Changes in Surplus.

In 2018, the Company established an additional actuarial reserve of $200 million based on asset adequacy analysis forstructured settlement contracts. This amount is included in Additions to reserves in the accompanying StatutoryStatements of Operations.

In 2017, reserves for structured settlement contracts increased by $300 million as a result of deteriorating mortalityand low interest rates. This change in valuation basis was reported as a direct reduction in surplus in the accompanyingStatutory Statements of Changes in Surplus.

Generally, owners of annuities in payout status are not able to withdraw funds from their policies at their discretion.


NOTE 12 – INSURANCE LIABILITIES (continued)

59

Accident and Health Reserves (Including Long-term Care)

Reserves for accident and health policies are valued consistent with interest rate and morbidity tables, where applicable.

Claim reserves and unpaid claim liabilities were $1,371 million and $1,310 million at December 31, 2018 and 2017,respectively. During 2018 and 2017, $176 million and $164 million was paid for incurred losses and loss adjustmentexpenses attributable to insured events of prior years, respectively. Additionally, during 2018, there was $54 millionof favorable prior-year loss development, the result of ongoing analysis of recent loss development trends. Reservesremaining for prior years at December 31, 2018 were $1,128 million as a result of re-estimation of unpaid claims andclaim adjustment expenses principally on long-term care, group medical (discontinued in 2013), disability income andMedicare supplement insurance.

Original estimates were adjusted as additional information became known regarding individual claims. The Companyhad no unfavorable prior year loss development on retrospectively rated policies included in this decrease. However,the business to which it relates is subject to premium adjustments.

In 2018, the Company recorded a $197 million increase in formulaic reserves for long-term care contracts. This changein valuation basis was reported as a direct reduction in surplus in the accompanying Statutory Statements of Changesin Surplus. This was offset by a $195 million decrease in asset adequacy reserves for long-term care contracts, whichis included in Additions to reserves in the accompanying Statutory Statements of Operations.

In 2017, the Company recorded a change in reserve basis as a direct reduction in surplus in the accompanying StatutoryStatements of Changes in Surplus, reflecting a $14 million increase in reserves for individual disability insurance toreflect updated morbidity experience.

Deposit Funds

Deposit funds at December 31, 2018 and 2017 were as follows (in millions):

2018 2017GICs without life contingencies (including funding agreements) $ 19,218 $ 15,197Dividend accumulations or refunds and other deposit funds 2,308 2,328Supplemental contracts without life contingencies 282 273Continued interest accounts 59 73Annuities certain 42 51Total deposit funds $ 21,909 $ 17,922

The weighted average interest rate on all GICs without life contingencies was 2.33% and 1.90% at December 31, 2018and 2017, respectively. The weighted average remaining maturity was 2 years, 8 months and 2 years, 9 months atDecember 31, 2018 and 2017, respectively. Withdrawal prior to maturity is generally not permitted.

GICs without life contingencies issued by the Company include funding agreements issued to special purpose entities(“SPEs”) and the FHLB of NY.

The SPEs purchase the funding agreements with the proceeds from medium term notes issued by the SPE, which havepayment terms substantially identical to the funding agreements issued by the Company. At December 31, 2018 and2017, the balance under funding agreements sold by the Company to the SPEs was $14,527 million and $11,932 million,respectively.



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The Company is a member of the FHLB of NY and issues funding agreements to the FHLB of NY in exchange forcash. The proceeds from the sale of these funding agreements are invested to earn a spread. The funding agreementsare issued through the general account and are included in the liability for deposit funds in the accompanying StatutoryStatements of Financial Position. When a funding agreement is issued, the Company is required to post collateral inthe form of eligible securities including mortgage-backed, government and agency debt instruments for each of theadvances received. Upon any event of default by the Company, the FHLB of NY’s recovery on the collateral is limitedto the amount of the Company’s liability to the FHLB of NY.

The amount of FHLB of NY common stock held, in aggregate, exclusively in the Company’s general account atDecember 31, 2018 and 2017 was as follows (in millions):

2018 2017Membership stock - class B(1) $ 41 $ 38Activity stock 161 118Aggregate total $ 202 $ 156Actual or estimated borrowing capacity as determined by the insurer $ 8,349 $ 8,159

(1) Membership stock is not eligible for redemption.

The amount of collateral pledged to the FHLB of NY at December 31, 2018 and 2017 was as follows (in millions):

Fair Value Carrying ValueAggregate Total

BorrowingCurrent year general account $ 4,674 $ 4,645 $ 3,584Prior year general account $ 3,421 $ 3,294 $ 2,630

The maximum amount of collateral pledged to the FHLB of NY during the years ended December 31, 2018 and 2017was as follows (in millions):

Fair Value Carrying ValueAggregate Total

BorrowingCurrent year general account $ 4,674 $ 4,645 $ 3,584Prior year general account $ 3,956 $ 3,780 $ 2,180

The following table reflects the amount borrowed from the FHLB of NY in the form of funding agreements atDecember 31, 2018 and 2017 (in millions):

2018 2017Funding agreements issued $ 3,584 $ 2,630Funding agreement reserves established $ 3,584 $ 2,630Maximum amount borrowed during the year $ 3,584 $ 2,630

The Company does not have any prepayment obligations for these funding agreement arrangements.



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Withdrawal Characteristics of Annuity Reserves and Deposit Funds

The following table reflects the withdrawal characteristics of annuity reserves and deposit fund liabilities atDecember 31, 2018 and 2017 ($ in millions):

2018

GeneralAccount

SeparateAccounts with

Guarantees

SeparateAccounts Non-

guaranteed Total% ofTotal

Subject to discretionary withdrawal:With fair value adjustment $ 8,077 $ 4,828 $ — $ 12,905 22%At fair value — 2,907 2,687 5,594 9Total with adjustment or at fair value 8,077 7,735 2,687 18,499 31At book value without adjustment 4,603 — — 4,603 8Not subject to discretionary withdrawal 35,834 — — 35,834 61Total annuity reserves and deposit fundliabilities $ 48,514 $ 7,735 $ 2,687 $ 58,936 100%

2017

GeneralAccount

SeparateAccounts with

Guarantees

SeparateAccounts Non-

guaranteed Total% ofTotal

Subject to discretionary withdrawal:With fair value adjustment $ 7,890 $ 4,481 $ — $ 12,371 22%At fair value — 4,947 3,764 8,711 16Total with adjustment or at fair value 7,890 9,428 3,764 21,082 38At book value without adjustment 4,088 — — 4,088 7Not subject to discretionary withdrawal 30,421 — — 30,421 55Total annuity reserves and deposit fundliabilities $ 42,399 $ 9,428 $ 3,764 $ 55,591 100%



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NOTE 13 – REINSURANCE


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The Company enters into ceded reinsurance agreements in the normal course of its insurance business to reduce overallrisk and to be able to issue life insurance policies in excess of its retention limits. The Company also participates inassumed reinsurance with third parties in acquiring additional business. Both assumed and ceded reinsurancetransactions are discussed in further details below.

For the years ended December 31, 2018 and 2017, individual and group life reinsurance activity was as follows (inmillions):

2018 2017Premiums:

Direct $ 16,545 $ 14,637Assumed 1,027 954Ceded (488) (520)

Net premiums $ 17,084 $ 15,071Policyholder benefits assumed $ 1,306 $ 1,699Policyholder benefits ceded $ 671 $ 683Reinsurance recoverable $ 145 $ 115

Reinsurance Assumed

The Company assumes on a coinsurance basis 100% of the obligations and liabilities of John Hancock Life InsuranceCompany (U.S.A.) and one of its affiliates ("John Hancock") closed block primarily participating whole life insurancepolicies. The Company retrocedes 40% of those obligations and liabilities to John Hancock on a funds-withheldarrangement. The assets received from this transaction are pledged as collateral and are contractually restricted; themajority of which are held in reinsurance trust for the Company's obligations to John Hancock.

The insurance related revenue from the reinsured policies, including net investment income from the contractuallyrestricted assets, after satisfying certain related expenses and taxes, inure solely to the benefit of those reinsuredpolicyholders and will not be available to the Company's policyholders.

For the years ended December 31, 2018 and 2017, reserves related to the John Hancock reinsurance transaction wereas follows (in millions):

2018 2017Reserves assumed $ 8,439 $ 8,781Reserves ceded (3,376) (3,512)Reserves net $ 5,063 $ 5,269

Effective April 1, 2018, the Company’s coinsurance with funds withheld and modified coinsurance agreements withNYLIAC were terminated, as NYLIAC fully recaptured the risks related to this business. The Company received arecapture fee from NYLIAC in the amount of $21 million pre-tax. Prior to the recapture, the Company had assumed90% of a block of in-force life insurance business from NYLIAC consisting of universal life and variable universallife products assumed using a combination of coinsurance with funds withheld for the fixed portion maintained in thegeneral account and modified coinsurance (“MODCO”) for policies in the separate accounts. Under both the MODCOand funds withheld treaties, NYLIAC retained the assets held in relation to the policy reserves and separate accountsliabilities. An experience refund was paid to NYLIAC at the end of each accounting period for 100% of the profits inexcess of $5 million per year. Experience refunds paid in 2018 and 2017 were $2 million and $67 million, respectively,which is reported in Premiums in the accompanying Statutory Statements of Operations. At December 31, 2017, theCompany held assumed reserves under coinsurance with funds withheld and MODCO of $ $5,347 million.

Reinsurance Ceded

The Company enters into ceded reinsurance agreements in the normal course of its insurance business to reduce overallrisk and to be able to issue life insurance policies in excess of its retention limits. Currently, the Company cedes themortality risk on new business for term and employees’ whole life insurance policies on a quota-share yearly renewableterm basis. Most of the ceded reinsurance business is on an automatic basis. The quota share currently ceded generallyranges from 25% to 76% with a minimum size policy ceded of either $1 million or $2 million for term and no minimumsize for employees’ whole life. Cases in excess of the Company’s retention and certain substandard cases are ceded ona facultative reinsurance basis. The majority of the Company's facultative reinsurance is for substandard cases in whichit typically cedes 90%.

The ceding of risk does not discharge the Company from its primary obligations to policyholders. To the extent thatthe assuming reinsurers become unable to meet their obligations under reinsurance contracts, the Company remainscontingently liable. Each reinsurer is reviewed to evaluate its financial stability before entering into each reinsurancecontract and throughout the period that the reinsurance contract is in place.

Life insurance ceded was 11% and 12% of total life insurance in-force at December 31, 2018 and 2017, respectively.The reserve reductions taken for life insurance reinsured were $3,763 million and $3,879 million for the years endedDecember 31, 2018 and 2017, respectively.

The Company has reinsurance agreements with New York Life Agents Reinsurance Company (“NYLARC”). NYLARCis a life insurance company wholly owned by NYLARC Holding Company, Inc., whose shareholders consist of theCompany’s top agents who meet certain criteria and who may also be agents of NYLIAC or NYLAZ. NYLARCreinsures a portion of certain life insurance products sold by its shareholders. NYLARC’s purpose is to retain highproduction agents, and increase the volume and quality of the business that they submit to the Company and NYLIAC.


NOTE 13 - REINSURANCE (continued)

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NOTE 14 – BENEFIT PLANS

Defined Benefit Plans

The Company maintains various tax-qualified and non-qualified defined benefit pension plans covering eligible U.S.employees and agents. The tax-qualified plan for employees includes both a traditional formula and a cash balanceformula. The applicability of these formulas to a particular plan participant is generally determined by age and date ofhire. Under the traditional formula, benefits are based on final average earnings and length of service. The cash balanceformula credits employees’ accounts with a percentage of eligible pay each year based on years of service, along withannual interest credits at rates based on IRS guidelines. Benefits under the tax-qualified plan for agents are based onlength of service and earnings during an agent’s career. The non-qualified pension plans provide supplemental benefitsin excess of the maximum benefits applicable to a tax-qualified plan.

The tax-qualified defined benefit pension plans of the Company are funded solely by Company contributions. TheCompany's funding policy is to make annual contributions that are no less than the minimum amount needed to complywith the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the IRCof 1986, as amended, and no greater than the maximum amount deductible for federal income tax purposes. In 2018,the Company made voluntary contributions to the tax-qualified plans for employees and agents of $300 million and$200 million, respectively. No contributions were required to satisfy the minimum funding requirements under ERISAand the IRC.

The Company has established separate irrevocable grantor trusts covering certain of the non-qualified arrangementsto help protect non-qualified payments thereunder in the event of a change in control of the Company. The grantortrusts are not subject to ERISA.

Other Postretirement Benefits

The Company provides certain health care and life benefits for eligible retired employees and agents (and their eligibledependents). Employees are eligible for retiree health and life benefits if they are at least age 55 with 10 or more yearsof service with the Company, provided that they are enrolled for active health care coverage on the date they terminateemployment. Agents are generally eligible for retiree health and life benefits if they meet certain age and service criteriaon the date they terminate service.

Employees and agents who retired prior to January 1, 1993 and agents who were active on December 31, 1992 andmet certain age or service criteria on that date do not make contributions toward retiree health care coverage. All othereligible employees and agents may be required to contribute towards retiree health care coverage. The Company paysthe entire life insurance costs for retired employees and agents.

The Company has established two separate Voluntary Employees Beneficiary Association ("VEBA") Trusts, theEmployees' Life and Health Benefit Trust ("Employee VEBA") and the Agents' Life and Health Benefit Trust ("AgentVEBA"). The Employee VEBA is currently exclusively used to fund a portion of the postretirement health and lifebenefits for retired employees, and the Agent VEBA is currently exclusively used to fund a portion of the postretirementhealth and life benefits for retired agents. In addition, the tax-qualified pension plan for agents includes a medical-benefit component to fund a portion of the postretirement obligations for retired agents and their dependents inaccordance with IRC Section 401(h). The Company pays the remaining balance of these costs.

Postemployment Benefits and Compensated Absences

The Company provides certain benefits to eligible employees during employment for paid absences, and to eligibleemployees and agents after termination of service. These benefits include, but are not limited to, salary continuationduring medical and pregnancy leaves, short-term disability-related benefits, and continuation of health care benefits.

Plan Assets

Each tax-qualified pension plan currently invests in two group annuity contracts which are held in separate trusts: onecontract is an immediate participation guarantee ("IPG") contract relating to the Company’s general account (“GAContract”), and the other contract relates to the Company’s pooled separate accounts (“SA Contract”). The Companyis the issuer of the GA and SA Contracts. In addition, certain assets are directly invested in third-party real estateinvestment funds. Total tax-qualified plan assets at December 31, 2018 and 2017 are as follows (in millions):

Tax-qualified Pension Plans2018 2017

GA Contracts(1) $ 4,219 $ 2,713SA Contracts(2) 2,687 3,764Third-party real estate investment funds 395 390Cash 1 —Third-party money market mutual funds — 106Total plan assets $ 7,302 $ 6,973

(1) The GA Contracts are included in the Company's assets and policy reserves liabilities in the accompanying Statutory Statementsof Financial Position.(2) The SA Contracts are included in the Company's separate accounts assets and liabilities in the accompanying Statutory Statementsof Financial Position.

Under the GA Contract, NYL Investors manages the assets in the portion of the Company’s general account in whichthe GA Contract participates. The GA Contract provides for the payment of an annual administrative charge based ona percentage of the assets maintained in the fixed account under the contract. Under the SA Contract, certain registeredinvestment advisory subsidiaries of NYL Investments act as investment managers for the pooled separate accounts.The SA Contract provides for the payment of separate annual fees for the management and administration of eachseparate account.


NOTE 14 – BENEFIT PLANS (continued)

65

The assets of each of the VEBA Trusts are invested in MainStay and Vanguard mutual funds, trust owned life insurance(“TOLI”) and cash and cash equivalents. Total assets of the other postretirement plans (including VEBA Trusts and401(h) component) at December 31, 2018 and 2017 are as follows (in millions):

Other Postretirement Plans2018 2017

IPG Contract (401(h) component)(1) $ 30 $ 29Mainstay International Equity Fund 56 62Vanguard mutual funds 173 186TOLI policies 395 414Cash and cash equivalents 11 10Total Plan assets $ 665 $ 701

(1) The GA Contracts are included in the Company's assets and policy reserves liabilities in the accompanying Statutory Statementsof Financial Position.

NYLIM serves as investment manager of the MainStay International Equity Fund. The TOLI policies are corporatesponsored universal life (“CSUL”) and corporate sponsored variable universal life (“CSVUL”) policies issued byNYLIAC. CSVUL policy premiums are invested in certain insurance dedicated funds offered in connection with variableproducts for which NYLIM serves as investment advisor.

The investment objectives for the tax-qualified pension plans and VEBA Trusts are: (1) to maintain sufficient incomeand liquidity to fund benefit payments; (2) to preserve the capital value of the plans and trusts; (3) to increase the capitalvalue of the plans and trusts; and (4) to earn a long-term rate of return, which meets or exceeds the plans’ and trusts’assumed actuarial rates of return. Under the investment policies for the tax-qualified pension plans, the plans’ assetsare to be invested primarily in a balanced and diversified mix of high quality equities, fixed income securities, groupannuity contracts, private equity investments, real estate investments, hedge fund investments, cash equivalents, andsuch other assets as may be appropriate. Under the investment policies for the VEBA Trusts, the assets of the trusts areto be invested primarily in insurance contracts (variable and/or fixed) and/or mutual funds, which in turn, invest in abalanced and diversified mix of high quality equities, fixed income securities, cash equivalents, and such other assetsas may be appropriate. The Investment Committees of the Board of Trustees (the "Committees”) monitor and reviewinvestment performance to ensure assets are meeting investment objectives.

The Committees have established a broad investment strategy targeting an asset allocation for both the tax-qualifiedpension plans, and for the VEBA Trusts. Diversifying each asset class by style and type further enhances this allocation.In developing this asset allocation strategy, the Committees took into account, among other factors, the informationprovided to them by the plans’ actuary, information relating to the historical investment returns of each asset class, thecorrelations of those returns, and input from the plans’ investment consultant. The Committees regularly review theplans’ asset allocations versus the targets and make adjustments as appropriate.



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The percentage of target allocation and asset allocation, by asset category, for the tax-qualified pension plans and theVEBA Trusts at December 31, 2018 and 2017, were as follows:

Tax-qualified Pension Plans VEBA Trust

Target Allocation Asset Allocation Target Allocation Asset Allocation

Asset Category 2018 2017 2018 2017 2018 2017 2018 2017

Fixed income securities 65% 40% 65% 41% 30% 30% 33% 27%

Equity securities 35 60 35 59 70 70 67 73

Total 100% 100% 100% 100% 100% 100% 100% 100%

The pooled separate accounts under the SA Contracts and the third-party real estate investment funds invest in variousinvestment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks.Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes inthe values of investment securities will occur in the near term and that such changes could materially affect the amountsreported in the financial statements.

The fair values (refer to Note 9 - Fair Value Measurements for description of levels) of the tax-qualified pension plans'assets at December 31, 2018 and 2017 were as follows (in millions):

2018

Asset Category Level 1 Level 2 Level 3NAV as a Practical

Expedient TotalCash $ 1 $ — $ — $ — $ 1Fixed income securities:

IPG contract — — 4,219 — 4,219High yield bond separate accounts — — — 328 328Absolute return hedge fund separate account — — — 14 14Municipal bond separate account — — — 195 195

Equity securities:Private equity separate accounts — — — 711 711Indexed equity separate account — — — 243 243International equity separate account — — — 518 518Small cap core separate account — — — 154 154Long/short equity hedge fund separate account — — — 359 359Large cap enhanced separate account — — — 165 165Morgan Stanley prime property fund — — — 165 165Invesco core real estate fund — — — 146 146JPMorgan strategic property fund — — — 84 84

Total assets accounted for at fair value $ 1 $ — $ 4,219 $ 3,082 $ 7,302



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2017

Asset Category Level 1 Level 2 Level 3 TotalFixed income securities:

IPG contract $ — $ — $ 2,713 $ 2,713Absolute return hedge fund separate account — — 52 52BlackRock Federal Institutional Fund 36 — — 36Dreyfus Government Cash Management Fund 35 — — 35JP Morgan U.S. Government Capital Fund 35 — — 35

Equity securities:Private equity separate accounts — — 553 553Indexed equity separate account — 706 — 706International equity separate account — 978 — 978Small cap core separate account — 355 — 355REIT equity separate account — 320 — 320Long/short equity hedge fund separate account — — 342 342Large cap enhanced separate account — 458 — 458Morgan Stanley prime property fund — — 162 162Invesco core real estate fund — — 146 146JPMorgan strategic property fund — — 82 82

Total assets accounted for at fair value $ 106 $ 2,817 $ 4,050 $ 6,973

The fair values of other postretirement benefit plan assets at December 31, 2018 and 2017 were as follows (in millions):

2018

Asset Category Level 1 Level 2 Level 3NAV as a Practical

Expedient Total

Cash, cash equivalents, and short-term investments $ — $ 11 $ — $ — $ 11

Fixed income securities:

CSUL policies — — 157 — 157

IPG contract — — 30 — 30

Vanguard Bond Market Index Fund 42 — — — 42

Equity securities:

Vanguard Institutional Index Fund 131 — — — 131

MainStay International Equity Fund 56 — — — 56

CSVUL - MainStay VP Indexed Equity — — 206 — 206

CSVUL - MainStay VP International Equity — — 32 — 32

Total assets accounted for at fair value $ 229 $ 11 $ 425 $ — $ 665



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2017

Asset Category Level 1 Level 2 Level 3 TotalCash, cash equivalent and short-term investments $ 1 $ 9 $ — $ 10Fixed income securities:CSUL policies — — 154 154IPG contract — — 29 29Vanguard Bond Market Index Fund

18 — — 18Equity securities:Vanguard Institutional Index Fund 186 — — 186MainStay International Equity Fund 44 — — 44

CSVUL - MainStay VP Indexed Equity — — 222 222 CSVUL - MainStay VP International Equity — — 38 38Total assets accounted for at fair value $ 249 $ 9 $ 443 $ 701

Determination of Fair Values

The following is a description of the valuation methodologies used to determine fair value, as well as the generalclassification of such instruments pursuant to the valuation hierarchy.

IPG Contract

The fair value of the IPG contract is its contract value, which represents contributions made, plus interest earned, lessfunds used to pay claims, premiums and fees. The IPG contract is classified as Level 3 due to the fact that the contractvalue relies on internal reports issued by NYLIM that are unobservable by third-party market participants.

Investments in Pooled Separate Accounts and Real Estate Funds

The pooled separate accounts and real estate investment funds net asset value ("NAV") represents the fair value of eachunit held by the tax-qualified pension plans and is the level at which transactions occur. The real estate investmentfunds include the Morgan Stanley Prime Property Fund, Invesco Core Real Estate Fund, and JP Morgan StrategicProperty Fund and invest primarily in real estate and real estate related assets. The investments are measured usingNAV as a practical expedient, and are not required to be leveled.



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The following tables provide further information about the separate accounts and real estate investment funds (inmillions):

2018

Category ofInvestment Investment Strategy


UnfundedCommitments

RedemptionFrequency


High yield bondseparate accounts High yield bonds $ 328 $ —

Daily, PendingMarket

Conditions N/A

Absolute return hedgefund separate accounts

Multi-strategy anddistressed securities $ 14 $ —

Semi-Annual and

Quarterly

60-90 days(Assets subject tolock-up periods)

Municipal bondseparate account Municipal bonds $ 195 $ —


Conditions N/A

Long/short equityhedge fund separateaccounts

Long/short equity,futures, options, foreignexchange, arbitrage $ 359 $ —

Annual, Semi-Annual,

Quarterly,Monthly, Daily

90 days or less(Assets subject tolock-up periods)

Private equity separateaccounts

Leveraged buyout,mezzanine financing,distressed securities $ 711 $ 550 N/A N/A

Equity separateaccounts

Indexed, large capenhanced, international,and small core funds $ 1,080 $ —


Conditions N/A

Real estate investmentfunds

Real estate and realestate related assets $ 395 $ — Quarterly

45 - 90 days(subject to

availability offunds)

2017

Category ofInvestment Investment Strategy


UnfundedCommitments

RedemptionFrequency


Absolute return hedgefund separate accounts Multi-strategy $ 52 $ —


Quarterly,Monthly


Long/short equityhedge fund separateaccounts Long/short equity $ 342 $ —


Quarterly,Monthly, Bi-

monthly


Private equity separateaccounts

Private equity leveragebuyout and mezzaninefinancing $ 553 $ 462 N/A N/A

Equity separateaccounts

Indexed, large capenhanced, international,and small core funds $ 2,497 $ —


Conditions N/A

Real estate investmentfunds

Real estate and realestate related assets $ 390 $ — Quarterly

45 - 90 days(subject to

availability offunds)

Real estate separateaccount (REIT Equity)

Real estate investmenttrust equity $ 320 $ —


Conditions N/A



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Mutual Funds

The MainStay International Equity Fund and the Vanguard Funds are all open end registered mutual funds which arepriced using a daily NAV. The prices are publicly published, and there are no restrictions on contributions andwithdrawals. As such, they are classified as Level 1.

CSUL and CSVUL Policies

The CSUL and the CSVUL policies are reported at cash surrender value. These policies have surpassed their surrendercharge period; therefore, their cash value and their contract value are equal. These policies are classified as Level 3since the valuation relies on data supplied by an insurance carrier that is unique to these policies and the inputs areunobservable. There is also no secondary market for these assets.

Cash, Cash Equivalents and Short-Term Investments

The carrying value of cash is equivalent to its fair value and is classified as Level 1 in the fair value hierarchy as theamounts are available on demand. Due to the short-term maturities, the carrying value of short-term investments andcash equivalents is presumed to approximate fair value and is classified as Level 2.

The following presents the change in plan assets of the defined benefit pension plans and postretirement benefitplans for December 31, 2018 and 2017 (in millions):

Pension Plan Benefits Postretirement Plan BenefitsChange in Plan Assets 2018 2017 2018 2017 Fair value of plan assets at beginning of year $ 6,973 $ 5,715 $ 701 $ 612 Actual return (loss) on plan assets 148 764 (24) 95 Contributions by employer 554 850 64 43 Contributions by plan participants — — 13 12 Benefits paid (373) (356) (89) (61) Fair value of plan assets at end of year $ 7,302 $ 6,973 $ 665 $ 701

Benefit Plan Obligations

The PBO for pension benefits represents the present value of estimated future benefit obligations and includesassumptions for future compensation increases. Accumulated benefit obligations differ from PBO in that it does nottake into consideration future salary increases. Actuarial gains and losses primarily reflect the difference betweenexpected and actual results from the impact of assumption changes related to discount rates, future compensation levelsand mortality assumptions, as well as other items.



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The following table details the change in benefit obligation for the years ended December 31, 2018 and 2017, respectively(in millions):

Pension Plan Benefits Postretirement Plan Benefits

Overfunded Underfunded Overfunded UnderfundedChange in Benefit Obligation 2018 2017 2018 2017 2018 2017 2018 2017

Benefit obligation at beginning of year $ 7,092 $ — $ 1,077 $ 7,517 $ — $ — $ 1,627 $ 1,439

Service cost 146 — 22 148 — — 27 23

Interest cost 235 — 36 271 — — 55 54

Contribution by plan participants — — — — — — 13 12

Actuarial (gain) loss (510) — (59) 589 — — (96) 160

Benefits paid (320) — (53) (356) — — (89) (61)

Benefit obligation at end of year $ 6,643 $ — $ 1,023 $ 8,169 $ — $ — $ 1,537 $ 1,627

The aggregate amount of the accumulated benefit obligation for defined benefit pension plans was $7,278 million and$7,714 million for December 31, 2018 and 2017. At December 31, 2018, the defined benefit pension plans wereoverfunded by $659 million. No plans were overfunded at December 31, 2017.

Net Periodic Benefit Cost

The net periodic benefit cost represents the annual accounting expense recognized by the Company and is included inOperating expenses in the accompanying Statutory Statements of Operations. The components of net periodic benefitcost were as follows (in millions):

Pension Plan Benefits Postretirement Plan Benefits

Components of Net Periodic Benefit Cost 2018 2017 2018 2017

Service cost $ 168 $ 148 $ 27 $ 23

Interest cost 271 271 55 54

Expected return on plan assets (460) (406) (47) (41)

Amortization of losses 178 169 10 5

Amortization of prior service credit (3) (3) (17) (17)

Amortization of nonvested prior service cost — — 23 23

Net periodic benefit cost $ 154 (1) $ 179 (1) $ 51 (2) $ 47 (2)

(1) Includes pension plan costs charged to subsidiaries of $50 million and $46 million for the years ended December 31, 2018 and2017, respectively. The liabilities for these plans are included with the liabilities for the corresponding plan of the Company.

(2) Includes postretirement costs charged to subsidiaries of $10 million and $9 million for the years ended December 31, 2018 and2017, respectively. The liabilities for these plans are included with the liabilities for the corresponding plan of the Company.

Benefit Plan Assumptions

Benefit obligations are reported based on certain actuarial assumptions, which are subject to change. Due to uncertaintiesinherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimatesand assumptions could occur in the near term and would be material to the financial statements.



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Weighted-average assumptions used to determine benefit obligations at December 31, 2018 and 2017 were as follows:

Pension Plan Benefits Postretirement Plan Benefits2018 2017 2018 2017

Discount rate 4.45% 3.76% 4.52% 3.82%Rate of compensation increase:

Employees 4.90% 4.90% 4.90% 4.90% Agents 6.00% 6.00% N/A N/A

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2018 and2017 were as follows:


Discount rate for benefit obligations 3.76% 4.37% 3.82% 4.51%Service cost discount rate 3.90% 4.68% 4.01% 4.88%Effective rate of interest on benefit obligation 3.39% 3.69% 3.47% 3.85%Expected long-term rate of return on plan assets 6.50% 7.25% 6.75% 6.75%Rate of compensation increase:

Employees 4.90% 5.10% 5.10% 5.10% Agents 6.00% 3.75% N/A N/A

The Company uses a full yield curve approach to determine its U.S. pension and other postretirement benefit obligationsas well as the service and interest cost components of net periodic benefit cost.

The discount rates used are based on hypothetical AA yield curves represented by a series of spot discount rates fromhalf a year to 99 years. The spot rate curves are derived from a direct calculation of the implied forward curve, basedon the included bond cash flows. Each bond issue underlying the yield curve is required to be non-callable, with arating of AA, when averaging all available ratings by Moody’s Investor Services, Standard & Poor’s and Fitch.Additionally, each bond must have at least $300 million par outstanding to ensure it is sufficiently marketable. Finally,the outlier bonds (i.e. those whose yields to maturity significantly deviate from the average yield in each maturitygrouping) are removed. The yields are used to discount future pension and other postretirement plan cash flows at aninterest rate specifically applicable to the timing of each respective cash flow. For disclosure purposes, the sum of thesediscounted cash flows are totaled into a single present value and an equivalent weighted-average discount rate iscalculated by imputing the singular interest rate that equates the total present value of the stream of future cash flows.

The Company utilizes a full yield curve approach in the calculation of the service and interest cost components byapplying the specific spot rates along the yield curve used in the determination of the benefit obligation to their relevantunderlying projected cash flows. The current approach provides a more precise measurement of service and interestcost by improving the correlation between projected benefit cash flows and their corresponding spot rates.

The expected long-term return on assets for the tax-qualified pension plans and the VEBA Trusts is based on (1) anevaluation of the historical behavior of the broad financial markets, (2) the plan’s target asset allocation, and (3) thefuture expectations for returns for each asset class, modified by input from the plans' investment consultant based onthe current economic and financial market conditions.



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The assumed health care cost trend rates used in measuring the APBO were as follows:

2018 2017

Before 65Age 65 and

older Before 65Age 65 and

older

Following year 7.75% 8.75% 8.00% 9.25%Ultimate rate to which cost increase is assumed to decline 4.75% 4.75% 4.75% 4.75%Year in which the ultimate trend is received 2028 2028 2028 2028

For dental plans, the annual rate of increase in the per capita cost of covered health care benefits is assumed to be 5.00%per year for all participants.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point increase and decrease in assumed health care cost trend rates at December 31, 2018 would have thefollowing effects (in millions):

20181% Increase 1% Decrease

Effect on total of service and interest cost components $ 6 $ (5)Effect on APBO $ 114 $ (93)

Amounts Recognized in the Statements of Financial Position

The components of funded status and assets and liabilities recognized at December 31, 2018 and 2017 were as follows(in millions):

Pension Plan Benefits Postretirement Plan BenefitsComponents 2018 2017 2018 2017 Prepaid benefit costs $ 2,719 $ 2,285 $ — $ — Overfunded plan assets $ (2,060) $ (2,285) $ — $ — Accrued benefit costs $ 656 $ 622 $ 630 $ 643 Liability for pension benefits $ 367 $ 574 $ 242 $ 283Assets and liabilities recognizedNonadmitted plan assets $ (659) $ — $ — $ — Liabilities recognized $ 1,023 $ 1,196 $ 872 $ 926

Increases or decreases in the funded status are reported as direct adjustments to surplus. Any overfunded plan assetsare nonadmitted. Associated deferred tax assets are also recorded and admitted to the extent that contributions will bemade over the next three tax years.



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Amounts in unassigned funds (surplus) recognized as components of net periodic benefit cost were as follows (inmillions):


Items not yet recognized as a component of netperiodic benefit cost - prior year $ 2,860 $ 2,795 $ 283 $ 189Net prior service cost recognized 3 3 17 17Net nonvested prior service credit recognized — — (23) (23)Net gain (loss) arising during the year (258) 231 (25) 105Net loss recognized (178) (169) (10) (5)Items not yet recognized as a component of netperiodic benefit cost - current year $ 2,427 $ 2,860 $ 242 $ 283

Amounts in unassigned funds (surplus) expected to be recognized in the next fiscal year as components of net periodicbenefit cost were as follows (in millions):


Net nonvested prior service cost $ — $ — $ 23 $ 23 Net prior service credit $ (4) $ (3) $ (17) $ (17) Net recognized losses $ 140 $ 178 $ 8 $ 10

Amounts in unassigned funds (surplus) that have not yet been recognized as components of net periodic benefit costwere as follows (in millions):


Net nonvested prior service cost $ — $ — $ 122 $ 145 Net prior service credit $ (21) $ (24) $ (150) $ (166) Net recognized losses $ 2,448 $ 2,884 $ 269 $ 304

Cash Flows

The Company's funding policy for the tax-qualified pension plans is to make annual contributions that are no less thanthe minimum amount needed to comply with the requirements of the ERISA and the IRC, and no greater than themaximum amount deductible for federal income tax purposes. The Company does not have any regulatory contributionrequirements for 2019.

Prefunding contributions can be made to either of the VEBA Trusts to partially fund postretirement health and lifebenefits other than pensions. The Company does not expect to make any prefunding contributions to either of the VEBATrusts in 2019.



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The estimated future benefit payments are based on the same assumptions used to measure the benefit obligations atDecember 31, 2018. The following benefit payments, which reflect expected future service, as appropriate, are expectedto be paid (in millions):

Pension PlanBenefits

PostretirementPlan Benefits

PostemploymentPlan Benefits

2019 $ 395 $ 68 $ 82020 $ 408 $ 71 $ 92021 $ 421 $ 74 $ 92022 $ 434 $ 76 $ 102023 $ 446 $ 78 $ 102024-2028 $ 2,422 $ 406 $ 59

The Company expects to pay approximately $48 million of non-qualified pension plan benefits during 2019. TheCompany expects to pay approximately $50 million for other postretirement benefits during 2019.

The projected 2019 annual benefit payments to plan participants from the GA Contracts issued by the Company are$347 million. The projected 2019 annual benefit payments for retiree health coverage related to the VEBA Trusts'investments in insurance contracts issued by the Company is $12 million.

For the years ended December 31, 2018 and 2017, the Company paid $60 million and $50 million, respectively, ingross benefit payments related to health benefits. For the years ended December 31, 2018 and 2017, the Company didnot receive any gross subsidy receipts.

Defined Contribution Plans

The Company maintains various tax-qualified and non-qualified defined contribution plans covering eligible U.S.employees and agents (401(k) plans). For employees, the plans provide for pre-tax salary reduction contributions(subject to maximums) and Company matching contributions of up to 4% of annual salary (base plus eligible incentivepay are considered). For the years ended December 31, 2018 and 2017, the Company’s matching contributions to theemployees’ tax-qualified plan totaled $37 million and $36 million, respectively. A non-qualified plan credits participantand Company matching contributions with respect to compensation in excess of the amount that may be taken intoaccount under the tax-qualified plan.

For agents, the plan provides for pre-tax commission reduction agreements, subject to maximums.

The Company annually determines the level of Company contributions to the agents’ plan. Contributions are based oneach participant’s net renewal commissions, net renewal premiums and cash values for the plan year on policies forwhich the participant is the original writing agent. In 2018 and 2017, the Company’s contributions to the agents’ tax-qualified plan totaled $2 million for both years. There is no non-qualified plan for agents.



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NOTE 15 – COMMITMENTS AND CONTINGENCIES

Support and Credit Agreements

The Company has a credit agreement with NYLAZ (which is a wholly-owned subsidiary of the Company), dated August11, 2004 and amended and restated November 16, 2015, whereby NYLAZ may borrow from the Company up to $10million. During 2018 and 2017, the credit facility was not used, no interest was paid and there was no outstandingbalance due.

The Company has a credit agreement with NYLIAC, dated September 30, 1993, as amended, whereby NYLIAC mayborrow from the Company up to $490 million. During 2018 and 2017, the credit facility was not used, no interest waspaid and there was no outstanding balance due.

In addition, the Company has a credit agreement with NYLIAC, dated April 1, 1999, as amended, under which theCompany may borrow from NYLIAC up to $490 million. During 2018 and 2017, the credit facility was not used, nointerest was paid and there was no outstanding balance due.

NYLCC, a wholly-owned subsidiary of NYLIFE LLC (which is a wholly-owned subsidiary of the Company), has acredit agreement with the Company dated October 1, 1997, and amended on December 21, 2016, whereby NYLCChas agreed to make loans to the Company in an amount up to, but not exceeding, $2,500 million from proceeds fromthe issuance of commercial paper. The Company had a loan payable to NYLCC of $501 million and $496 million atDecember 31, 2018 and 2017, respectively, included in borrowed money in the accompanying Statutory Statements ofFinancial Position. The Company recorded interest expense of $9 million and $5 million during the years endedDecember 31, 2018 and 2017, respectively.

The Company has a credit agreement with NYL Investors, dated April 1, 2015 whereby the Company has agreed tomake loans to NYL Investors in an amount up to, but not exceeding, $10 million. During 2018 and 2017, the creditfacility was not used, no interest was paid and there was no outstanding balance due.

Guarantees

At December 31, 2018, the Company had the following outstanding guarantees (in millions):

Nature and Circumstances of Guarantee and KeyAttributes

LiabilityRecognition of

Guarantee

UltimateFinancialStatementImpact if

Action Underthe Guarantee is

Required

MaximumPotential

Amount ofFuture Payments(Undiscounted)the Company

Could beRequired to

Make Under theGuarantee

Current Status ofPayment or

Performance Risk ofGuarantee

1. On July 11, 2008, the Company executed anagreement to indemnify GoldPoint Partners LLC(formerly known as NYLCAP Manager LLC) forcapital contributions that may be required inconnection with GoldPoint Partner’sindemnification obligations to NYLCAP SelectManager Fund, LP.

Exempt.Guarantee ison behalf of awholly ownedsubsidiary.

Expenseswould increase

$25 The Company overseesthe operations ofGoldPoint Partners LLCand assesses the risk tobe minimal.

2. On January 17, 2012, the Company executed anagreement to indemnify GoldPoint Partners LLCfor capital contributions that may be required inconnection with GoldPoint Partners LLC’sindemnification obligations to NYLCAP SelectManager Fund II, L.P.




3. On April 7, 2015, the Company executed anagreement to indemnify GoldPoint Partners LLCfor capital contributions that may be required inconnection with GoldPoint Partners LLC’sindemnification obligations to NYLCAP SelectManager Fund III, L.P.




4. On September 28, 1995, the Company entered intoa support agreement with NYLCC to maintain apositive net worth of NYLCC of at least $1. SinceNYLCC only makes loans to the Company or itsparticipating wholly owned subsidiaries, theCompany would only be obligated under theguarantee in the event that one of the participatingsubsidiaries defaulted under its loan.


None. Thefinancialstatementimpact ofperformanceunder theguaranteewould be offsetby an increasein SCAassociated withthe defaultingsubsidiary’sdebt release.

$740 Based on NYLCC’sfinancial position andoperations, theCompany considers therisk of performance tobe minimal.


NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)

77

Nature and Circumstances of Guarantee and KeyAttributes

LiabilityRecognition of

Guarantee

UltimateFinancialStatementImpact if

Action Underthe Guarantee is

Required

MaximumPotential

Amount ofFuture Payments(Undiscounted)the Company

Could beRequired to

Make Under theGuarantee

Current Status ofPayment or

Performance Risk ofGuarantee

5. On November 7, 2007, the Company issued aguarantee to the Bank of New York ("BoNY")unconditionally guaranteeing the debts of MCF inconnection with a standby letter of credit enteredbetween MCF and BoNY. MCF provides revolvingloans to third parties. The borrower sometimesrequires a line of credit to be issued by a bank toback the revolving loan. In order for BoNY toenter into this line of credit, they required theCompany to provide a guarantee on behalf ofMCF.



$100 The Company, in theordinary course ofbusiness, provides MCFwith capital andfinancing to meet theirobligations. TheCompany views the riskof performance underthis guarantee to beminimal.

6. The Company issues funding agreements to NewYork Life Global Funding, which issues, or hasissued notes to investors. If any taxing authorityimposes withholding taxes on the payments dueunder the funding agreements or such notes (forexample, as a result of a law change), theCompany is required, in certain instances, toincrease the payments on the funding agreementsto make up for the amounts required to bewithheld.

Exempt.Related partyguarantee thatis unlimited.


The Companycannot estimatethe maximumliability. TheCompany cannotanticipate therisk or amountthat taxingauthorities maywithhold taxes.

The Company does notview its risk ofperformance under theguarantee to besignificant.Additionally, ifwithholding becomesrequired, the Companyis permitted to terminatethe funding agreements.

7. The Company has entered into certainarrangements with various regulators whereby theCompany agreed to maintain NYLAZ's capital andsurplus at certain levels.

Exempt.Related partyguarantee thatis unlimited.

None Unlimited Capital contributions towholly ownedsubsidiaries would notaffect the Company’sfinancial position.

8. The Company along with several other insurancecompanies entered into a supplemental benefitsreinsurance and participation agreement withGuaranty Association Benefits Company (GABC),a captive insurance company created to assumeand reinsure certain restructured annuityobligations of Executive Life Insurance Companyof New York (ELNY). The participating lifeinsurance companies agreed to assure that eachindividual payee under ELNY contracts willreceive from GABC total annuity benefits due tothe payee.

$0 Expenseswould increase

Unlimited Based on an analysisperformed by anindependent riskmanagement firm, theCompany does notanticipate that anyfurther funding will berequired.

9. On September 12, 2012, the Company issued aguarantee for the full and punctual payment of allamounts that are or may become due and payableby NYL Cayman Holdings Ltd., NYLE, andSeguros Monterrey New York Life S.A. to AceINA International Holdings Ltd. in connection withthe sale by NYL Cayman Holdings Ltd., NYLEand Seguros Monterrey New York Life S.A. ofNew York Life Worldwide Capital, LLC, theholding company for Fianzas Monterrey, S.A. andits subsidiary, Operadora FMA, S.A. de C.V.

Exempt.Guarantee ison behalf ofpreviouslywholly ownedsubsidiaries.


Unlimited The Company views therisk of performanceunder this guarantee asremote.

10. On June 25, 2013, the Company issued a guaranteefor the full and timely payment of certainindemnity payments that may become due andpayable by NYLE to Yuanta Financial HoldingCo., Ltd. in connection with the sale by NYLE ofNew York Life Insurance Taiwan Corporation.

Exempt.Guarantee ison behalf ofpreviouslywholly ownedsubsidiaries.


Unlimited The Company views therisk of performanceunder this guarantee asremote.



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Guarantee Obligations (in millions):

a. Aggregate maximum potential of future payments of all guarantees (undiscounted) theguarantor could be required to make under guarantees* $ 915

b. Current contingent liability recognized in financial statement1. Noncontingent liabilities $ —2. Contingent liabilities $ —

c. Ultimate financial statement impact if action under the guarantee is required1. Investments in SCA $ —2. Joint venture $ —3. Dividends to stockholders $ —4. Expense $ 1755. Other $ —

* Excludes guarantees where maximum potential is unlimited or not quantified.

Litigation

The Company and/or its subsidiaries are defendants in individual and/or alleged class action suits arising from theiragency sales force, insurance (including variable contracts registered under the federal securities law), investment,retail securities, employment and/or other operations, including actions involving retail sales practices. Some of theactions seek substantial or unspecified compensatory and punitive damages. The Company and/or its subsidiaries arealso from time to time involved in various governmental, administrative, and investigative proceedings and inquiries.

Notwithstanding the uncertain nature of litigation and regulatory inquiries, the outcome of which cannot be predicted,the Company believes that, after provisions made in the financial statements, the ultimate liability that could resultfrom litigation and proceedings would not have a material adverse effect on the Company’s financial position; however,it is possible that settlements or adverse determinations in one or more actions or other proceedings in the future couldhave a material adverse effect on the Company’s operating results for a given year.

Lease Commitments

The Company leases office space, distribution facilities, and certain office equipment under various agreements withvarious expiration dates. The leases contain provisions for payment of real estate taxes, building maintenance, electricity,and rent escalations.

Rent expense for all leases amounted to $142 million and $164 million for the years ended December 31, 2018 and2017, respectively, of which $66 million and $86 million was billed to subsidiaries in accordance with an intercompanycost sharing arrangement for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancellable operating leases with original or remaining lease terms in excessof one year at December 31, 2018 were as follows (in millions):

Year Real Property Equipment Total2019 $ 119 $ 15 $ 1342020 118 2 1202021 112 1 1132022 100 — 1002023 87 — 87Thereafter 273 — 273Total $ 809 $ 18 $ 827



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In connection with the sale of one of its home office properties in 1995, the Company had entered into an agreementto lease back a portion of the building through 2010. Effective December 7, 2009, the Company renewed such leasethrough 2024, with total future lease obligations of $75 million at December 31, 2018 that are included in the abovetable.

Borrowed Money

Borrowed money, generally carried at the unpaid principal balance and any interest payable included a loan payableto NYLCC, with various maturities, latest being March 18, 2019, (weighted average interest rate of 2.46% and 1.29%for 2018 and 2017, respectively) in the amount of $501 million and $496 million for the years ended December 31,2018 and 2017, respectively.

Refer to Note 6 - Investments for a more detailed discussion of the Company's commitments for loaned securitiesand repurchase agreements.

Assessments

Most of the jurisdictions in which the Company is licensed to transact business require life insurers to participate inguaranty associations which are organized to pay contractual benefits pursuant to insurance policies issued by impaired,insolvent or failed life insurers. These associations levy assessments, up to prescribed limits, on all member insurersin a particular state on the basis of the proportionate share of the premiums written by member insurers in the line ofbusiness in which the impaired, insolvent or failed life insurer is engaged. Some states permit member insurers torecover assessments through full or partial premium tax offsets.

Liens

Several commercial banks have customary security interests in certain assets of the Company to secure potentialoverdrafts and other liabilities of the Company that may arise under custody, securities lending and other bankingagreements with such banks.

Other Commitments and Contingencies

At December 31, 2018 and 2017, contractual commitments to extend credit for commercial mortgage loans totaled$1,343 million and $849 million, respectively, at both fixed and variable rates of interest. These commitments arediversified by property type and geographic location. There were no contractual commitments to extend credit underresidential loan agreements at December 31, 2018 and 2017.

At December 31, 2018 and 2017, the Company and its guaranteed separate accounts had outstanding contractualobligations to acquire additional private placement securities amounting to $1,075 million and $568 million,respectively.

Unfunded commitments on limited partnerships, limited liability companies and other invested assets amounted to$3,686 million and $3,695 million at December 31, 2018 and 2017, respectively. Unfunded commitments on LIHTCamounted to $15 million and $24 million at December 31, 2018 and 2017, respectively. At December 31, 2018, unfundedcommitments on LIHTC are included in Limited partnerships and other invested assets, with an offset in Other liabilitiesin the accompanying Statutory Statements of Financial Position.



80

NOTE 16 – INCOME TAXES


81

The components of the net DTAs and DTLs were as follows at December 31, 2018 and 2017 (in millions):

2018 2017 ChangeOrdinary Capital Total Ordinary Capital Total Ordinary Capital Total

Gross DTAs $ 2,991 $ 648 $ 3,639 $ 2,908 $ 606 $ 3,514 $ 83 $ 42 $ 125

Statutory valuation allowance — — — — — — — — —Adjusted gross DTAs 2,991 648 3,639 2,908 606 3,514 83 42 125Nonadmitted DTAs(1) — — — 504 — 504 (504) — (504)

Subtotal net admitted DTAs 2,991 648 3,639 2,404 606 3,010 587 42 629Gross DTLs 1,192 956 2,148 1,113 804 1,917 79 152 231

Net admitted DTAs/(DTLs)(2) $ 1,799 $ (308) $ 1,491 $ 1,291 $ (198) $ 1,093 $ 508 $ (110) $ 398

(1) DTAs are nonadmitted primarily because they are not expected to be realized within three years of the Statutory Statement ofFinancial Position date. (2) The total net admitted DTAs are included in Other assets in the accompanying Statutory Statements of Financial Position.

The admission calculation components for the years ended December 31, 2018 and 2017 were as follows (paragraphreferences throughout Note 16 are to paragraphs of SSAP No. 101 “Income Taxes, A Replacement of SSAP No. 10Rand SSAP No. 10”) (in millions):

December 31, 2018 December 31, 2017 ChangeOrdinary Capital Total Ordinary Capital Total Ordinary Capital Total

Federal income taxes paid inprior years recoverablethrough loss carrybacks(Paragraph 11.a) $ — $ — $ — $ — $ 119 $ 119 $ — $ (119) $ (119)Adjusted gross DTAexpected to be realized(excluding the amount ofDTA from paragraph 11.aabove) after application ofthe threshold limitation (thelesser of paragraph 11.b.iand 11.b.ii below): 1,184 306 1,491 806 168 974 378 138 517Adjusted gross DTAexpected to be realizedfollowing the balance sheetdate (Paragraph 11.b.i) 1,184 306 1,491 806 168 974 378 138 517Adjusted gross DTA allowedper limitation threshold(Paragraph 11.b.ii) N/A N/A 2,872 N/A N/A 2,835 N/A N/A 37Adjusted gross DTA(excluding the amount ofDTA from paragraphs 11.aand 11.b above) offset bygross DTL (Paragraph 11.c) 1,807 341 2,148 1,598 319 1,917 209 22 231DTA admitted as the resultof application of SSAP 101(Total of paragraphs 11.a,11.b, 11.c) $ 2,991 $ 648 $ 3,639 $ 2,404 $ 606 $ 3,010 $ 587 $ 42 $ 629

The ratio used to determine the applicable period used in paragraph 11.b.i above and the amount of adjusted capitaland surplus used to determine the percentage threshold limitation in paragraph 11.b.ii above are as follows atDecember 31, 2018 and 2017 ($ in millions):

2018 2017

Ratio percentage used to determine recovery period and threshold limitation amount 899% 1,002%Amount of adjusted capital and surplus used to determine recovery period and thresholdlimitation in paragraph 11.b.ii above $ 19,149 $ 18,897

There was no impact on adjusted gross and net admitted DTAs due to tax planning strategies at December 31, 2018and 2017. The Company did not use reinsurance in its tax planning strategies.

The Company had no unrecognized DTLs at December 31, 2018 and 2017. Additionally, the Company had noadjustments to gross DTAs because of a change in circumstances that causes a change in judgment about the realizabilityof the related DTAs.

The TCJA was enacted on December 22, 2017 and it significantly changes U.S. tax law primarily by lowering thecorporate income tax rate from 35% to 21% beginning in 2018. Deferred taxes were revalued to reflect the 21% corporateincome tax rate with the following result (in millions):

2018 2017Deferred income tax benefit on change in net unrealized capital gains (losses) $ — $ 109Decrease in net deferred taxes related to other items (104) (1,128)Decrease to net deferred taxes booked to surplus (104) (1,019)Decrease to nonadmitted deferred taxes booked to surplus — 416Total change in net admitted DTAs $ (104) $ (603)

For tax years beginning January 1, 2018, the TCJA limits life insurance reserves for tax purposes to the greater of thenet surrender value or 92.81% of NAIC required reserves. In general, the TCJA will result in lower life insurancereserves for tax purposes than under pre-TCJA law. Tax accounting for these changes requires the restatement ofDecember 31, 2017 life insurance tax reserves calculated using pre-TCJA rules to the amounts required to be held underthe TCJA. This revaluation requires establishing a “gross up” in which an additional DTA for the revised statutory totax difference is recorded. The TCJA also requires the recapture of prior years’ tax benefits from the higher life insurancereserves. This recapture is paid ratably over eight years beginning in 2018 and is recorded in the financial statementsfor the year ended December 31, 2017 as a DTL in an equal amount to the additional DTA. The Company has recordedas a provisional amount offsetting the DTAs and DTLs in the amount of $302 million at December 31, 2018. The taxaccounting has been completed within the measurement period, as defined in INT 18-01. On the basis of life insurancetax reserve computations that were completed in 2018, an additional measurement period tax reserve increase of $184million was recognized to the DTL and $184 million offset to the DTA. The restatement of life insurance tax reserves,which now has been determined to be complete, resulted in a total DTL of $486 million with a corresponding adjustmentof $486 million to the DTA at December 31, 2018.

Significant components of the current federal and foreign income taxes for the years ended December 31, 2018 and2017 were as follows (in millions):

2018 2017 Change Federal(1) $ (443) $ (622) $ 179 Foreign 1 — 1Subtotal (442) (622) 180Federal income tax on net capital gains (35) 20 (55)Total federal and foreign income taxes $ (477) $ (602) $ 125

(1) The Company had investment tax credits of $119 million and $61 million for the years ended December 31, 2018 and 2017,respectively.


NOTE 16 - INCOME TAXES (continued)

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The tax effects of temporary differences that give rise to DTAs and DTLs for the years ended December 31, 2018 and2017 were as follows (in millions):

2018 2017 ChangeDTAsOrdinary:

Policyholder reserves $ 1,161 $ 1,076 $ 85Pension accrual 147 327 (180)Deferred acquisition costs 570 560 10Compensation and benefits accrual 485 445 40Policyholder dividends accrual 218 200 18Fixed assets 177 135 42Receivables - nonadmitted 163 24 139Investments 39 39 —Unearned premium reserves 1 1 —Tax credit carry-forward — 69 (69)Other 30 32 (2)

Subtotal 2,991 2,908 83Nonadmitted — 504 (504)

Admitted ordinary DTAs 2,991 2,404 587Capital:

Investments 646 602 44Real estate 2 4 (2)Subtotal 648 606 42

Nonadmitted — — —Admitted capital DTAs 648 606 42Total admitted DTAs 3,639 3,010 629

DTLsOrdinary:

Deferred and uncollected premiums 425 411 14Policyholder reserves 546 539 7Investments 69 50 19Fixed assets 151 110 41Other 2 3 (1)

Subtotal 1,192 1,113 79Capital:

Investments 891 749 142Real estate 65 55 10

Subtotal 956 804 152Total DTLs 2,148 1,917 231Net admitted DTAs $ 1,491 $ 1,093 $ 398

Deferred income tax benefit on change in net unrealizedcapital gains (losses) $ (13)Decrease in net deferred taxes related to other items (93)Decrease in DTAs nonadmitted 504

Total change in net admitted DTAs $ 398



83

The Company’s income tax expense (benefit) for the years ended December 31, 2018 and 2017 differs from the amountobtained by applying the statutory rate of 21% and 35%, respectively, to net gain from operations after dividends topolicyholders and before federal income taxes for the following reasons (in millions):

2018 2017 ChangeNet gain from operations after dividends to policyholders andbefore federal and foreign income taxes at statutory rate $ 177 $ 332 $ (155)Net realized capital losses at statutory rate (28) (11) (17)Nonadmitted assets (163) (31) (132)Prior year audit liability and settlement (35) 11 (46)Contiguous country branch income (2) (4) 2Stock contribution to the NYL Foundation (5) (2) (3)Amortization of IMR (21) (37) 16Dividends from subsidiaries (192) (151) (41)Tax exempt income (28) (86) 58Tax credits, net of withholding (86) (101) 15Accruals in surplus 98 (131) 229Impact of TCJA (104) 1,128 (1,232)Other 6 4 2Income tax incurred and change in net deferred tax during year $ (384) $ 921 $ (1,305)Federal and foreign income taxes reported in the Company'sStatutory Statements of Operations $ (442) $ (622) $ 180Capital gains tax benefit incurred (35) 20 (55)Change in net deferred income taxes 93 1,523 (1,430)Total federal and foreign income tax expense (benefit) $ (384) $ 921 $ (1,305)

The Company’s federal income tax returns are routinely audited by the IRS and provisions are made in the financialstatements in anticipation of the results of these audits. The IRS has completed audits through 2010 and tax years 2011through 2013 are currently under examination. There were no material effects on the Company’s accompanying StatutoryStatements of Operations as a result of these audits. The Company believes that its recorded income tax liabilities areadequate for all open years.

The Company did not have any operating loss and tax credit carry forwards available for tax purposes. For the yearsended December 31, 2018 and 2017, the Company did not have any income taxes incurred in prior years that will beavailable for recoupment in the event of future net losses.

The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12months.

As discussed in Note 3 – Significant Accounting Policies - Federal Income Taxes, the Company’s federal income taxreturn is consolidated with NYLIAC, NYLAZ, NYLIFE LLC, NYLE, NYL Investments, and NYL Investors.

At December 31, 2018 and 2017, the Company recorded a current income tax (payable)/receivable of $(41) millionand $385 million, respectively. The current income tax receivable was included in Other assets and the current incometax payable was included in Other liabilities in the accompanying Statutory Statements of Financial Position.

At December 31, 2018, the Company had no protective tax deposits on deposit with the IRS under Section 6603 of theIRC.



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NOTE 17 – SURPLUS


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Net Unrealized Capital Gains (Losses)

Cumulative net unrealized gains on investments, gross of deferred taxes, recognized in unassigned surplus were $5,256million and $5,794 million at December 31, 2018 and 2017, respectively.

Surplus Notes

The following table summarizes the surplus notes issued and outstanding at December 31, 2018 ($ in millions):

Issue DatePrincipalAmount

CarryingValue

Interest PaidCurrent Year

CumulativeInterest Paid Interest Rate

MaturityDate

10/8/2009 $ 1,000 $ 999 $ 68 $ 614 6.75% 11/15/20395/5/2003 1,000 995 59 912 5.88% 5/15/2033

Total $ 2,000 $ 1,994 $ 127 $ 1,526

The 2009 Notes and the 2003 Notes (collectively, the “Notes”) were issued pursuant to Rule 144A under the SecuritiesAct of 1933, as amended, and are administered by Citibank, as registrar/paying agent. Interest on the Notes is paidsemi-annually on May 15th and November 15th of each year.

The Notes are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claimsagainst the Company. Under New York State Insurance Law, the Notes are not part of the legal liabilities of the Company.Each payment of interest or principal may be made only with the prior approval of the Superintendent of FinancialServices of the State of New York (“Superintendent”) and only out of surplus funds, which the Superintendent determinesto be available for such payments under New York State Insurance Law. Provided that approval is granted by theSuperintendent, the Notes may be redeemed at the option of the Company at any time at the “make-whole” redemptionprice equal to the greater of: (1) the principal amount of the Notes to be redeemed, or (2) the sum of the present valuesof the remaining scheduled interest and principal payments on the notes to be redeemed, excluding accrued interest asof the date on which the Notes are to be redeemed, discounted on a semi-annual basis at an adjusted treasury rate plus20 basis points for the 2003 Notes and 40 basis points for the 2009 Notes, respectively, plus in each case, the accruedinterest on the notes to be redeemed to the redemption date.

At December 31, 2018 and 2017, none of the Company’s affiliates owned any of the Notes.

At December 31, 2018, State Street Bank & Trust Co, Bank of New York Mellon, JP Morgan Chase Bank, NorthernTrust and Citibank were each the holder of record at The Depository Trust Company of more than 10% of the outstandingamount of the Notes, with each holding Notes, at least in part, for the accounts of their respective clients.

Nonadmitted Assets

Under statutory accounting rules, a nonadmitted asset is defined as an asset having economic value other than thatwhich can be used to fulfill policyholder obligations, or those assets that are unavailable due to encumbrances or otherthird-party interests. These assets are not recognized in the accompanying Statutory Statements of Financial Position,and are, therefore, considered nonadmitted. The changes between years in nonadmitted assets are charged or crediteddirectly to surplus.

NOTE 18 – SIGNIFICANT SUBSIDIARY


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NYLIAC is engaged in the life insurance and annuity businesses. A summary of NYLIAC's statutory statements offinancial position at December 31, 2018 and 2017 and results of operations for the years then ended are as follows (inmillions):

2018 2017Assets:

Bonds $ 84,920 $ 82,299Mortgage loans 14,210 13,657Separate accounts assets 38,466 41,286Other assets 15,862 15,609

Total assets $ 153,458 $ 152,851Liabilities and Capital and Surplus:

Policy reserves $ 94,131 $ 86,310Separate accounts liabilities 38,464 41,285Other liabilities 12,277 16,069Capital and surplus 8,586 9,187

Total liabilities and capital and surplus $ 153,458 $ 152,851Results of Operations:

Net gain from operations $ 275 $ 618Net realized capital gains (losses) (8) 34

Net income $ 267 $ 652

NOTE 19 - WRITTEN PREMIUMS


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Deferred and uncollected life insurance premiums at December 31, 2018 and 2017 were as follows (in millions):

2018 2017Gross Net of Loading Gross Net of Loading

Ordinary new business $ 179 $ 57 $ 174 $ 57Ordinary renewal 1,394 1,376 1,388 1,368Group life 556 453 575 468 Total $ 2,129 $ 1,886 $ 2,137 $ 1,893

The amounts above reflect a prescribed practice that departs from the NAIC Accounting Practices and ProceduresManual (Refer to Note 2 - Basis of Presentation for additional information).

Deferred premium is the portion of the annual premium not earned at the reporting date. Loading of deferred premiumis an amount obtained by subtracting the valuation net deferred premium from the gross deferred premium and generallyincludes allowances for acquisition costs and other expenses.

Uncollected premium is gross premium net of reinsurance that is due and unpaid at the reporting date. Net premium isthe amounts used in the calculation of reserves. The change in loading is included as an expense and is not shown asa reduction to premium income.

Ordinary new business and ordinary renewal business consist of the basic amount of premium required on the underlyinglife insurance policies.

Based upon Company experience, the amount of premiums that may become uncollectible and result in a potential lossis not material to the Company’s financial position. At December 31, 2018 and 2017, respectively, the Companynonadmitted $6 million and $8 million of premiums that were over 90 days past due.

The Company did not have any direct premium written/produced by managing general agents/third-party administratorsequal to or greater than 5% of surplus for the years ended December 31, 2018 and 2017, respectively.

NOTE 20 – LOAN-BACKED AND STRUCTURED SECURITY IMPAIRMENTS


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The following table lists each loan-backed and structured security at a CUSIP level where the present value of cashflows expected to be collected is less than the amortized cost basis during the year (in thousands):

IMPAIRMENTS TAKEN ON CURRENT HOLDINGS DURING THE CURRENT YEAR(1) (2) (3) (4) (5) (6) (7)

CUSIP(1,2)

AmortizedCost Before

CurrentPeriod OTTI

ProjectedCash Flows

CurrentPeriod

RecognizedOTTI

AmortizedCost After

OTTI Fair Value

FinancialStatementReporting

PeriodGeneral Account02147GAC8 $ 3,139 $ 3,110 $ 29 $ 3,110 $ 3,095 12/31/201802147QAF9 1,513 1,508 5 1,508 1,437 12/31/2018059469AF3 1,833 1,825 9 1,825 1,817 12/31/201805947UD70 9,976 4,746 5,230 4,746 6,097 12/31/201805947UD88 5,465 411 5,054 411 388 12/31/201805948KP52 2,072 2,058 14 2,058 1,968 12/31/201805951KBA0 358 353 5 353 349 12/31/201805953YAA9 356 354 2 354 343 12/31/2018073250BM3 2,295 2,217 77 2,217 2,204 12/31/201812544TAH7 1,356 1,281 75 1,281 1,328 12/31/201812544VAB5 1,915 1,865 50 1,865 1,854 12/31/201812627HAK6 1,073 1,052 21 1,052 1,020 12/31/201812628KAF9 458 448 10 448 414 12/31/201812628LAJ9 713 698 15 698 673 12/31/201812629EAD7 59 58 — 58 56 12/31/2018126384AQ9 3,961 3,656 306 3,656 3,739 12/31/201812638PAE9 526 520 6 520 509 12/31/201812667G7X5 2,424 2,343 81 2,343 2,372 12/31/201812669GT43 2 — 2 — — 12/31/201817029RAA9 1,420 181 1,239 181 57 12/31/201817309BAB3 60 59 2 59 58 12/31/2018225470M67 676 667 9 667 588 12/31/2018251513AV9 209 202 7 202 205 12/31/2018251513BC0 974 928 46 928 952 12/31/20183622E8AC9 280 261 19 261 263 12/31/20183622ELAG1 1,360 1,281 80 1,281 1,243 12/31/20183622EUAB2 156 148 8 148 151 12/31/20183622MPAT5 2,367 2,284 83 2,284 2,313 12/31/201836244SAF5 498 461 37 461 485 12/31/201845254NQG5 1,146 1,040 106 1,040 1,109 12/31/2018466247ZQ9 2,186 2,049 137 2,049 2,157 12/31/201846625YQX4 2,499 2,246 253 2,246 2,109 12/31/201861749EAH0 996 933 63 933 944 12/31/201861751JAH4 645 563 81 563 624 12/31/201861751JAJ0 640 560 80 560 624 12/31/201861752RAH5 293 286 6 286 286 12/31/201861752RAM4 1,745 1,679 66 1,679 1,691 12/31/201886359B5U1 4,293 3,909 384 3,909 4,200 12/31/201893934FCE0 1,107 1,078 29 1,078 1,084 12/31/2018


CUSIP(1,2)


CurrentPeriod OTTI

ProjectedCash Flows

CurrentPeriod

RecognizedOTTI

AmortizedCost After

OTTI Fair Value


Period00764MCQ8 325 324 — 324 324 9/30/201805948KH77 1,806 1,791 15 1,791 1,798 9/30/2018059515AE6 62 62 — 62 60 9/30/201812627HAK6 1,100 1,097 3 1,097 1,075 9/30/201812628KAF9 472 467 5 467 457 9/30/201812628LAJ9 750 727 23 727 686 9/30/201812629EAD7 60 60 1 60 59 9/30/201812638PAE9 554 540 15 540 541 9/30/201812667FJ48 2,135 2,045 90 2,045 1,970 9/30/201812667G6W8 5,775 5,704 71 5,704 5,771 9/30/201812669GT43 8 2 6 2 — 9/30/201815132EFL7 299 267 32 267 289 9/30/201817029RAA9 1,583 1,104 479 1,104 1,060 9/30/2018225458Y85 941 876 66 876 926 9/30/2018225470M67 716 688 28 688 627 9/30/2018059469AF3 2,070 1,960 111 1,960 2,039 6/30/201805949CPD2 996 944 52 944 741 6/30/2018059515AE6 67 65 2 65 63 6/30/201805951FAK0 120 119 1 119 118 6/30/201805951KAZ6 101 99 2 99 99 6/30/201805951KBA0 2,075 1,943 132 1,943 2,041 6/30/201812498NAD5 790 692 99 692 688 6/30/201812544VAB5 2,117 2,065 52 2,065 2,078 6/30/201812627HAK6 1,183 1,142 41 1,142 1,142 6/30/201812628LAJ9 795 772 23 772 727 6/30/201812629EAD7 63 62 1 62 63 6/30/201812667GKK8 1,034 1,002 32 1,002 1,016 6/30/201812669GT43 45 42 3 42 38 6/30/201815132EJH2 515 441 75 441 488 6/30/201817029RAA9 2,909 1,583 1,326 1,583 1,470 6/30/201832051GED3 268 78 190 78 185 6/30/201833882YAC3 857 — 857 — — 6/30/2018362375AF4 7,610 6,950 660 6,950 7,583 6/30/201836828QLA2 168 — 168 — 62 6/30/201846625YQY2 1,198 — 1,198 — 68 6/30/201894983PAG3 3,298 3,278 20 3,278 3,268 6/30/201894985GBB1 3,046 2,732 313 2,732 3,034 6/30/201800011#AA1 3,449 3,449 — 3,449 3,393 3/31/201805948KP52 2,556 2,481 76 2,481 2,482 3/31/201805951KAZ6 110 106 4 106 107 3/31/201805951KBA0 439 418 21 418 431 3/31/20181248MBAJ4 2,017 1,989 28 1,989 1,923 3/31/20181248MBAL9 572 564 8,566 564 541 3/31/2018


NOTE 20 – LOAN-BACKED AND STRUCTURED SECURITY IMPAIRMENTS (continued)

89


CUSIP(1,2)


CurrentPeriod OTTI

ProjectedCash Flows

CurrentPeriod

RecognizedOTTI

AmortizedCost After

OTTI Fair Value


Period12627HAK6 1,272 1,209 62 1,209 1,184 3/31/201812629EAD7 68 64 4 64 65 3/31/201812638PAE9 610 574 36 574 582 3/31/201812667GXM0 2,071 2,030 41 2,030 2,038 3/31/201812667GXN8 3,615 3,562 53 3,562 3,595 3/31/201812669GT43 121 114 7 114 112 3/31/2018151314CC3 577 450 127 450 560 3/31/2018151314DJ7 1,423 1,420 2 1,420 1,358 3/31/201815132ELF3 553 461 92 461 337 3/31/201817029RAA9 2,738 2,603 135 2,603 2,204 3/31/2018225470M67 852 781 71 781 705 3/31/201833882YAC3 1,613 991 622 991 815 3/31/201833883CAC0 3,272 3,272 — 3,272 3,229 3/31/201836185MBN1 424 419 5 419 421 3/31/20183622EUAF3 749 673 77 673 718 3/31/20183622MPAT5 2,799 2,775 24 2,775 2,838 3/31/201845660LHT9 2,342 2,155 187 2,155 2,224 3/31/201855265K4V8 102 101 1 101 101 3/31/201855265K4W6 43 43 — 43 43 3/31/201859020UXH3 2,185 2,119 66 2,119 2,098 3/31/201861752RAH5 343 319 24 319 333 3/31/201861752RAJ1 511 474 37 474 500 3/31/201869336RDQ0 819 686 132 686 709 3/31/201869337VAE0 2,073 1,762 310 1,762 1,927 3/31/201875952AAJ6 382 324 57 324 324 3/31/201878477AAA5 1,198 1,198 — 1,198 1,007 3/31/201881441PCG4 395 257 138 257 341 3/31/2018863579XV5 3,011 2,875 135 2,875 2,688 3/31/201893934FEM0 2,744 2,581 163 2,581 2,654 3/31/2018Subtotal-GeneralAccount XXX XXX $ 22,664 XXX XXXGuaranteed Separate Accounts059469AF3 $ 1,654,879 $ 1,647 $ 7,652 $ 1,647 $ 1,642 12/31/201805953YAA9 1,557,101 1,540 16,711 1,540 1,490 12/31/201812627HAK6 1,069 1,048 20,679 1,048 1,020 12/31/201812628KAF9 1,099 1,074 24,193 1,074 993 12/31/201812628LAJ9 951 931 20,023 931 897 12/31/201817309BAB3 295 287 8 287 286 12/31/201832052MAA9 24 23 1 23 14 12/31/20183622E8AC9 559 522 37 522 526 12/31/20183622ELAG1 1,397 1,314 83 1,314 1,274 12/31/201836244SAC2 1,315 1,218 98 1,218 1,281 12/31/201846628BBD1 410 396 14 396 396 12/31/2018



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(1) Only the impaired lots within each CUSIP are included within this table.(2) CUSIP amounts less than $1 thousand within this table are shown as zero.


CUSIP(1,2)


CurrentPeriod OTTI

ProjectedCash Flows

CurrentPeriod

RecognizedOTTI

AmortizedCost After

OTTI Fair Value


Period61749EAH0 531 498 33 498 504 12/31/201861751DAE4 129 119 10 119 121 12/31/201861751JAH4 806 704 102 704 780 12/31/201861751JAJ0 800 700 100 700 779 12/31/201881744HAF0 623 594 28 594 595 12/31/201887222PAC7 116 116 — 116 105 12/31/2018059515AE6 1,240 1,238 2 1,238 1,205 9/30/201812627HAK6 1,096 1,093 3 1,093 1,075 9/30/201812628KAF9 1,134 1,122 12 1,122 1,096 9/30/201812628LAJ9 1,000 970 30 970 914 9/30/201832052MAA9 27 24 3 24 14 9/30/201887222PAC7 119 118 1 118 115 9/30/2018059469AF3 1,869 1,769 100 1,769 1,841 6/30/2018059515AE6 1,338 1,290 47 1,290 1,258 6/30/201805951KAZ6 505 496 9 496 497 6/30/201805953YAA9 1,701 1,669 32 1,669 1,682 6/30/201812627HAK6 1,180 1,138 42 1,138 1,142 6/30/201812628LAJ9 1,060 1,029 31 1,029 969 6/30/201845660LMZ9 412 407 6 407 376 6/30/2018466247XN8 946 891 55 891 883 6/30/201805951KAZ6 550 529 21 529 537 3/31/20181248MBAL9 2,289 2,255 34 2,255 2,162 3/31/201812627HAK6 1,259 1,206 53 1,206 1,184 3/31/201845660LMZ9 432 424 8 424 400 3/31/201861751DAE4 149 140 9 140 148 3/31/2018Subtotal-GuaranteedSeparateAccounts XXX XXX $ 1,101 XXX XXX

Grand Total XXX XXX $ 23,765 XXX XXX



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NOTE 21 – SUBSEQUENT EVENTS

At March 7, 2019, the date the financial statements were available to be issued, there have been no events occurringsubsequent to the close of the Company’s books or accounts for the accompanying statutory financial statements thatwould have a material effect on the financial condition of the Company.

GLOSSARY OF TERMS

Term DescriptionABS Asset-backed securitiesAgent VEBA Agents' Life and Health Benefit TrustAPBO Accumulated postretirement benefit obligationsAVR Asset valuation reserveCMBS Commercial mortgage-backed securitiesCredit Facility Revolving credit facility agreementCSAs Credit support annexesCSUL corporate sponsored universal life policiesCSVUL Corporate sponsored variable universal life policiesDAC Deferred policy acquisition costsDRD Dividends received deductionDTA Deferred tax asset(s)DTL Deferred tax liability(ies)Employee VEBA The Employees' Life and Health Benefit TrustERISA Employee Retirement Income Security Act of 1974FHLB Federal Home Loan BankGA Contract IPG contract relating to New York Life’s general accountGICs Guaranteed interest contractsIMR Interest maintenance reserveINT 18-01 NAIC Interpretation 18-01IPG Immediate participation guaranteeIRC Internal Revenue CodeIRS Internal Revenue ServiceLIHTC Low-Income Housing Tax CreditLTV Loan to value ratioMCF Madison Capital Funding LLCMODCO Modified coinsuranceMTN Medium Term NotesNAIC National Association of Insurance Commissioners

NAIC SAPNational Association of Insurance Commissioners’ Accounting Practices andProcedures

NAV Net asset valueNYLARC New York Life Agents Reinsurance CompanyNYLAZ NYLIFE Insurance Company of ArizonaNYLCC New York Life Capital CorporationNYLE New York Life EnterprisesNYLIAC New York Life Insurance and Annuity CorporationNYL Investments New York Life Investment Management Holdings LLCNYL Investors NYL Investors LLCNYSDFS (or statutoryaccounting practices) New York State Department of Financial ServicesOTC Over-the-counterOTC-cleared Over-the-counter clearinghouse


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Term DescriptionOTC-bilateral Over-the-counter bilateral agreementsOTTI Other-than-temporary impairment(s)PBO Projected benefit obligationPBR Principles-based reservesRMBS Residential mortgage-backed securitiesSA Contract Contract related to New York Life's pooled separate accountsSCAs Subsidiary, controlled and affiliated entitiesSICAV Société d'Investissement à Captial VariableSPE Special purpose entity(ies)SSAP Statement of statutory accounting principleTCJA Tax Cuts and Jobs ActTDR Troubled debt restructuringThe Notes Both the surplus notes issued in 2003 and 2009TOLI Trust owned life insuranceU.S. GAAP Accounting principles generally accepted in the United States of AmericaVEBA Voluntary Employees Beneficiary Association TrustsYuanta Yuanta Financials Holding Co., Ltd.2003 Notes Surplus notes issued in 20032009 Notes Surplus notes issued in 2009


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